We believe that the just-announced ECB stimulus measures include a creative potential solution to the impact of NIRP [negative interest rate policy] on bank earnings. The most productive way for banks to avoid the NIRP charge on excess reserves is to use up those reserves by making loans, and the new ECB policy has a carrot-and-stick approach to encourage bank lending.  Banks that hit certain loan growth targets will be able to borrow from the ECB at negative interest rates.  Thus, banks that make loans will both receive the benefits of a negative rate (the carrot) while also avoiding the NIRP fee (the stick).  This new funding program essentially pays banks to lend money, and could provide significant economic stimulus through increased bank lending.  Borrowers would receive the ultra-low interest rates made possible by negative interest rate funding, and thus loan demand may also increase under this program.

David Fuller's view

Here is a PDF of The Weekly View.

Mario Draghi, who conceived and implemented this policy, remains one of the most brilliant Central Bankers in my opinion.  However, he looks tired and has to suffer EU political fools gladly.  Where are their policies for economic growth?  Should Draghi decide to retire sooner rather than later, it is hard to imagine how the farraginous EU would survive.