Exclusive: ECB discusses two-tiered bank charges, broader bond buys - officials

FRANKFURT (Reuters) - Euro zone central bank officials are considering options such as whether to stagger charges on banks hoarding cash or to buy more debt ahead of the next European Central Bank meeting, according to officials.

The European Central Bank (ECB) headquarters are pictured in Frankfurt, Germany, September 3, 2015. REUTERS/Ralph Orlowski

Little over a week before the meeting to set the ECB’s policy course, numerous alternatives are open, from snapping up the bonds of towns and regions to introducing a two-tier penalty charge on banks that park money with the ECB.

Officials, who spoke on condition of anonymity, said that even buying rebundled loans at risk of non-payment has been discussed in preparatory meetings, although such a radical step is highly unlikely for now. The ECB declined to comment.

“They are still trying to figure out what will be in the package. A lot of people have different views,” said one official with knowledge of talks that have put ECB President Mario Draghi at loggerheads with skeptical German policy-makers.

“There are some who say you should surprise markets. But you cannot surprise indefinitely. Sooner or later, you are bound to disappoint.”

A virtually stagnant euro zone economy and a heightened sense of concern at the ECB sets the backdrop for a series of high-level meetings of central bank officials in Frankfurt that take place this week.

“We have deflation, so you have to do something,” said a second person. “How this all looks in a few years, nobody knows.”

Yet after many weeks of discussion about what measures are needed to address persistently low price inflation, however, divisions are making it difficult to sign off any package to enhance quantitative easing and rock-bottom interest rates.

Failing to do so risks disappointing investors who expect ECB policysetters to bolster a one-trillion-euro plus program of quantitative easing when they meet on Dec. 3, in a move so significant it has been dubbed ‘QE2’.


ECB President Mario Draghi has made it clear that he would be willing to extend ECB money printing, now used to buy chiefly government bonds, as well as increase the charge on banks holding money at the ECB - known as the negative deposit rate.

In order to soften the impact of this on banks, officials are discussing a split-level rate, a contested step that would impose a higher charge on banks depending on the amount of cash they deposit with the ECB.

“It could be combined with a ceiling, so that from a certain point onwards liquidity can only be parked overnight at a stronger rate,” said a second official. “Whether and how to shape a deposit rate cut in December is in discussion.”

Any such staggered approach would blunt a straightforward increase in the charge, which would particularly hit banks from Germany or France, who park most with the ECB. Banks hold roughly 170 billion euros with the ECB in this way.

It would, however, further complicate an array of ECB measures.

Another possibility raised among officials was the idea of buying bank loans at risk of non-payment.

One person familiar with the matter said these could be packaged with more creditworthy loans before being put up for sale. “You could buy rebundled non-performing loans, combined with good loans,” said the person. “If we get to that, then things are very bad.”

Any such proposal would, however, anger Germany and is unlikely for now. The German member of the core executive board, Sabine Lautenschlaeger, has already flatly rejected the idea even of further money printing.

From a range of 20 possible measures, Draghi must now find a compromise that will win the blessing of a majority of the 19 central bank heads around the euro zone, from powerful Germany to poorer Greece.

Sylvester Eijffinger of Tilburg University warned that the fact that the discussion has resulted in open dissent was damaging. “The ECB is not speaking with one voice and that undermines credibility.”

Additional reporting by John Geddie in London Editing by Jeremy Gaunt.