Daily: Cutting interest on deposits at the ECB won’t spur lending since loans create deposits

Daily commentary

Since I have a decent amount of links, I thought i would do a special Sunday daily commentary. The issue I wanted to highlight is credit and how it gets created. At some point I may make a longer version of this to flesh out the points but what I want to focus on here is the ECB's cutting the interest rate it gives euro areas banks on deposits at the ECB.

When the ECB last met that was the big news, that the ECB would no longer give banks interest on deposits. Some people took it to mean that banks would be forced to increase lending. For example, this story from Reuters quotes a central banker saying just this:

ECB policymaker Josef Bonnici said the plunge in overnight deposits - to 325 billion euros from more than 800 billion a day earlier - was "encou...


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