How ECB Hopes ‘Tiering’ Eases Pain of Negative Rates

In September, the European Central Bank has doubled down on its negative interest rates, a policy meant to stimulate the economy by charging banks billions of euros for money they’re not lending out. At the same time, it added a new measure, called tiering, to ease the impact on banks that have been complaining about paying those billions. Tiering might help more of the ECB’s monetary stimulus reach the real economy. Or it could blunt the effort while helping some banks more than others. For the world’s only central bank managing a multicountry currency area, nothing is simple, especially very complicated things.

It’s a system that applies negative rates differently to different chunks of the money banks have parked with their central bank. The ECB’s system went into effect Oct. 30. That means that reserves as much as six times the minimum amount a bank there is required to hold will be exempt -- the interest rate on that money will be 0%. Any reserves beyond that mark will be subject to the ECB’s new deposit rate of minus 0.5%, a further drop from 0.4%.