Evolution of Deposit facility in European Central Bank from 1999

 

 Evolution of Deposit facility in ECB

 I have to comment what does consist of deposit facility. RT america, in their video explains "Deposit facility : A place where qualifying financial institutions can make overnight cash deposit for a risk free, but extremely low rate of interest. This interest rate represent the key rate set by ECB, which currently at 0.25% *in the actual moment it's -0,20 % ". The key word of this definition is risk free and extremely low rate of interest.

 

Members of Eurosystem, before the US Mortage Crisis of 2008, they were not interested in banking at the deposit facility for cost oppotunity reasons, that is, to bank in the deposit facility, they had to give up possible yields from loans and investments to other sectors like householders and firms. Furthermore, they need to suffer from the inflation. However, US Mortage Crisis was occured, Eurosystem banks was doubted about yields from loans for the fact of that unemployment rates of eurozone were increased and it was very probable that householders would not back what they loaned. For certain risks, Eurosystem banks decided to assume the cost oppotunities of deposit facility to avoid possible defaults.

 

In the 2011, when European Financial Crisis was occured, such protective attitude of Eurosystem banks was reached at boom. As a result, liquidity problems was occured in the eurozone, in the other words, banks didn't loans money to householderes and firms, so that, they had no money for new investments nither for mortages. 

 The ECB was concerned about growth rates and inflation rate. One of the mesurements of ECB was modification of interest rates of deposit facility in order to inject liquidity to the real market.

Interest rate of deposit facility