<p>Banks do not make matching deposits into central banks, other than in a hypothetical 100% reserve system. As such, the answer is “no”.</p>
<p>What happens is that the private bank has a liquidity inflow, and it would need to find a corresponding asset, normally a money market instrument. The yield on that instrument is likely negative, but the “negative interest” is flowing to the seller of the instrument.</p>

CC BY-SA 4.0
2020-08-10T15:50:21.530Z
thank you Brian! the logic is yet not fully clear to me. I understand the bank must keep an asset to counter-balance the liability of my deposit. But why must the bank bother to keep a money market instrument with negative yields in its assets. Can't the bank just keep the money I deposited as an asset and avoid to suffer negative yields?
elemolotiv
CC BY-SA 4.0
2020-08-10T16:16:02.690Z
You make a habit of depositing 100,000 euros worth of banknotes? That would raise the eyebrows of many regulators. In practice, most deposits are transfers from another bank, which creates a settlement balance at the central bank - which has a negative interest rate.
Brian Romanchuk
CC BY-SA 4.0
2020-08-10T17:38:14.153Z
no cash briefcases!  in my example I would transfer the money from another bank.  So OK you are saying there would be a settlement balance at the ECB, to which a -0.5% interest rate would be applied. That answers my initial question. But then, why did you mention the money market at all, if the process can work without money market funds? -- sorry I might look stubborn, I just want to understand the process inside-out ‍♂️
elemolotiv
CC BY-SA 4.0
2020-08-10T20:30:56.273Z
The bank would likely buy a money market instrument with the settlement balance.
Brian Romanchuk
CC BY-SA 4.0
2020-08-10T12:56:53.397Z
2020-08-10T12:56:53.397Z
Brian Romanchuk
<p>Given that the current ECB reserve rates are negative (-0.5%), I suspect that if I deposit 100k€ into a EU commercial bank, that bank must in turn deposit my money at the ECB and pay 500€/year to ECB (negative interests).</p>
<p>Is that correct? How does the mechanism work?</p>

CC BY-SA 4.0
2020-08-11T13:17:40.403Z
How do you deposit it? Cash, or bank transfer? If it's a bank transfer... they can **receive** 100k€ at the ECB and now they want to get rid of it so they don't have to pay interest.
Criticize SE actions means ban
CC BY-SA 4.0
2020-08-11T18:08:58.077Z
Yes bank transfer ! Thanks for the quick explanation
elemolotiv
<banking><central-banking>
Must a EU bank pay 500€ to the ECB, if I deposit 100k€ into that bank?
elemolotiv
# Must a EU bank pay 500€ to the ECB, if I deposit 100k€ into that bank?

(Asked by: username_0 on 2020-08-10)

Given that the current ECB reserve rates are negative (-0.5%), I suspect that if I deposit 100k€ into a EU commercial bank, that bank must in turn deposit my money at the ECB and pay 500€/year to ECB (negative interests).

Is that correct? How does the mechanism work?

**Tags:** banking, central-banking

> **Comments:**
> **username_1**: How do you deposit it? Cash, or bank transfer? If it's a bank transfer... they can **receive** 100k€ at the ECB and now they want to get rid of it so they don't have to pay interest.  
> **username_0**: Yes bank transfer ! Thanks for the quick explanation  

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## 1 answers

### Answer by username_2 on 2020-08-10. Score: 2

Banks do not make matching deposits into central banks, other than in a hypothetical 100% reserve system. As such, the answer is “no”.

What happens is that the private bank has a liquidity inflow, and it would need to find a corresponding asset, normally a money market instrument. The yield on that instrument is likely negative, but the “negative interest” is flowing to the seller of the instrument.

> **Comments:**
> **username_0**: thank you username_2! the logic is yet not fully clear to me. I understand the bank must keep an asset to counter-balance the liability of my deposit. But why must the bank bother to keep a money market instrument with negative yields in its assets. Can't the bank just keep the money I deposited as an asset and avoid to suffer negative yields?  
> **username_2**: You make a habit of depositing 100,000 euros worth of banknotes? That would raise the eyebrows of many regulators. In practice, most deposits are transfers from another bank, which creates a settlement balance at the central bank - which has a negative interest rate.  
> **username_0**: no cash briefcases!  in my example I would transfer the money from another bank.  So OK you are saying there would be a settlement balance at the ECB, to which a -0.5% interest rate would be applied. That answers my initial question. But then, why did you mention the money market at all, if the process can work without money market funds? -- sorry I might look stubborn, I just want to understand the process inside-out ‍♂️  
> **username_2**: The bank would likely buy a money market instrument with the settlement balance.  

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