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--Draghi Comments, Prompting Tiering Talk, Surprised Other ECB Officials
--Tiering More An Option If Rates More Deeply Negative, Officials Say
LONDON (MNI) - The European Central Bank would be more likely to tier its
deposit rate if it cut it to more deeply negative levels, something which is not
now probable, ECB sources told MNI, adding that comments by Mario Draghi which
prompted speculation that such a move was being studied caught officials by
"This has not been discussed so far. However, it would certainly be up for
consideration if we were to further cut rates, an option which is obviously not
on the table at present," one source said.
"We would need to go well below negative, like the Swiss central bank did a
while ago when it cut rates below the negative levels of the ECB."
France's Central Bank Governor Francois Villeroy de Galhau, concerned by
the effect of negative rates on French banks' profitability, has argued in
favour of tiering for some time, but the idea had never previously gained
traction, several sources said. ECB President Draghi's comments late in March
that the Bank may need to look at ways to help lenders cope with negative rates
suggested to some investors that tiering might be moving closer to reality.
"It surprised me - one wonders what triggered it. The negative effects of
negative interest rates on banks have been reiterated to the Governing Council a
number of times, particularly on the French side," one ECB official told MNI,
speculating that the mention of tiering might be related to the process of
choosing Draghi's successor. "It does open up the possibility of further
negative rates in future, but I don't currently see a real need to reduce it
further rather than to prolong rates at the current level."
--NOWHERE NEAR MAINSTREAM
Another source said the topic of tiering - which would apply different
rates to banks' deposits depending on how much they kept with the ECB, thus
reducing the drag on their profits - had not even made it to the Committee
stage, a vital first step before any discussion of the matter in the Governing
"Somewhere in a dark room in Euro Tower, a couple of ECB economists are
studying the impact of a trade deal with Mars," a fourth source said. "Just
because somewhere some academics are studying it, it doesn't mean it's yet
anywhere near the mainstream discussion."
"Of course, there is a chance that one day it will again be a Governing
Council discussion we have to have, but it really isn't for now. And as to bank
profitability, of course there has been an impact, but that must be seen in the
context of the beneficial economic support the extraordinary policy measures
The flurry of interest in tiering comes just after the ECB said in March
that it would provide additional cheap funding for banks, with a third round of
targeted longer-term refinancing operations to be made available in September.
Sources were divided as to when more detailed TLTRO terms will be announced,
with one saying by June, and another that it could be later than that, but
several agreed that TLTROs are of more use to Italian banks than to those of
"The fact is we're always under pressure from the banks for help and we
can't be seen to be making policy to help them all the time," said another
source, pointing to remarks by the ECB's Chief Economist Peter Praet, who said
that tiering would require a monetary policy justification.
"It's important to remember the context in which tiering came up," said the
official, referring to market chatter which surfaced a month or so ago.
"Previously the expectation was that we might be able to raise the deposit rate
a little bit this year or next. Now the markets are not so sure and so it's a
prolongation of the problem for the banks."
"For years the banks have made less from interest rates (as a result of
negative rates) but they sold bonds (under QE) and made up for that on the asset
An ECB spokesman said he could not comment on the matter.
--MNI London Bureau; +44 203 865 3829; email: email@example.com