Europe Tries a Radical Way to Prod Banks

ECB introduces negative interest rates
By Kevin Spak,  Newser Staff
Posted Jun 5, 2014 12:40 PM CDT
President of European Central Bank Mario Draghi speaks during a news conference in Frankfurt, Germany, June 5, 2014.   (AP Photo/Michael Probst)

(Newser) – The European Central Bank today announced that it's giving its banks a kick in the rear to get them to start lending again, by dropping its deposit interest rate to -0.1%. Yes, that's a minus sign—meaning that instead of giving banks interest for holding onto extra cash, the ECB will actually charge them for it, Vox explains. The hope is that by making it expensive for banks to hold excess cash, the ECB will encourage them to help the economy by spending or lending it instead.

A couple other central banks have experimented with the idea, but the ECB is "by far the biggest and most influential" to do so. Some have urged the US to try it as well, but so far the Fed's kept its positive 0.25% rate. The ECB also took the less flashy step today of slashing its main policy rate to 0.15% and hinting that it would soon try quantitative easing.

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