Enter Details

Comment on stories, receive email newsletters & alerts.

This is your permanent identity for Business Insider Australia
Your email must be valid for account activation
Minimum of 8 standard keyboard characters


Email newsletters but will contain a brief summary of our top stories and news alerts.

Forgotten Password

Enter Details

Back to log in

Mario Draghi has cracked the negative rate puzzle for banks

Mario Draghi, chief of the European Central Bank fired his monetary bazooka at stubbornly low inflation in the eurozone on Thursday.

Then he reloaded and fired again about three times.

The ECB cut all of its key interest rates, driving its deposit rate for banks down to minus 0.4%, and boosted its bond buying program to include corporate debt.

Banks have decried the negative rate policy because it eats in to a traditional part of their business — the net interest margin — which depends on a decent spread between central bank and retail rates.

But buried in the announcement was a lifeline for lenders.

Here’s the key line from the statement (emphasis ours):

A new series of four targeted longer-term refinancing operations (TLTRO II), each with a maturity of four years, will be launched, starting in June 2016. Borrowing conditions in these operations can be as low as the interest rate on the deposit facility.

So, while banks have to pay to leave money with the ECB, the ECB will also pay banks to borrow money, potentially cancelling out the charge from negative rates.

European bank stocks have been flying on the news. Here’s Deutsche Bank, up more than 5% on Thursday:

NOW WATCH: This is how rapper 50 Cent made millions and then lost it

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at