ECB: Tiering does not alleviate banks grieves – BNP Paribas

European banks are still suffering the cost of having reserves despite the tiering imposed by the European Central Bank at the end of last year, Laure Baquero from BNP Paribas reports. 

Key quotes

“Tiering partially exempts excess reserves of the euro area banks from the negative deposit facility rate (-0.5%). It applies within the limit of an amount equal to six times their minimum reserves. Banks whose excess reserves do not exceed this multiple may, in addition, convert all or part of their deposit facility into excess reserves.” 

“The amount of the deposit facility of the 19 banking systems in the euro zone decreased by 59% between September and December 2019, falling back to its spring 2016 level.”

“We estimate that tiering reduces the cost of negative interests by EUR 4.0 bn in the euro area and EUR 825 m in France. The annual cost of negative interest amounts to EUR 4.7 bn for the euro area banks, including EUR 3.5 bn attributable only to excess reserves and EUR 1.1 bn to the deposit facility.”