<p>Update:  today we have
ESTR overnight bank rate =1.40%
Euro deposit facility rate =1.50%
1week Euribor =1.39%
So the situation persists even though rates are much higher.  The reason that ESTR can be lower than the deposit facility rate is that the participants in ESTR cannot all access the deposit facility.  Thus, some participants make deposits at 1.40%, and some banks are able to take those deposits and rede posit them at the ECB for a 10bp profit.  This is explained on the ECB website</p>
<p><a href="https://www.ecb.europa.eu/stats/financial_markets_and_interest_rates/euro_short-term_rate/html/eurostr_qa.en.html" rel="nofollow noreferrer">https://www.ecb.europa.eu/stats/financial_markets_and_interest_rates/euro_short-term_rate/html/eurostr_qa.en.html</a></p>

CC BY-SA 4.0
2022-11-12T10:26:26.343Z
It makes sense for positive interest rate. But not for negative interest rate. A bank’s excess liquidity is considered as a deposit when the rates are negative. So if deposit rate is -0.5% and the bank doesn’t lend it out they lose -0.5% on the money. If a participant doesn’t have access to deposit facility, and they don’t do anything with it, then they would keep it at 0% instead of losing it at -0.57% — right?
Claudiu
CC BY-SA 4.0
2022-11-12T10:28:56.437Z
Hmmm UNLESS the non-participant has an even lower negative rate in their country. If they would lose -1% then better they deposit it at -0.57% . Was this the case?
Claudiu
CC BY-SA 4.0
2022-11-12T10:32:53.443Z
https://stats.bis.org/statx/srs/table/l1 YES Switzerland and Denmark had even lower rates. OMG it all makes sense now
Claudiu
CC BY-SA 4.0
2022-11-12T12:33:10.093Z
Hate to rain on your happiness, but: comparing to countries outside the Eurozone doesn’t make sense - you would have foreign exchange risk if you switched to a different currency.
dm63
CC BY-SA 4.0
2022-11-12T12:36:16.867Z
Also, you cannot practically keep your money at zero Percent when the ECB has negative rates.  The only way to do this is to turn it into bank notes and store them somewhere , which is probably impractical for a large bank with  tens of billions of excess liquidity
dm63
CC BY-SA 4.0
2022-11-12T22:02:57.447Z
Then it doesn’t make sense still. Why would a non participant in the EU be required to deposit at a negative rate? Is it because they deposit with a participant bank and that participar bank charges them a higher deposit fee to deposit?
Claudiu
CC BY-SA 4.0
2022-11-13T03:55:30.020Z
If you have euros, they attract whatever the market interest rate is, positive or negative.  You can’t avoid it.
dm63
CC BY-SA 4.0
2022-11-14T03:55:41.943Z
When I have euros in my bank account I get 0%. Even when the rate was negative. There needs to be some explanation for why it’s different for a non-participant in the ECB system. Why can’t they just hold the money for 0%? Without an explanation for this critical piece , it doesn’t make any sense, despite any affirmations to the contrary.
Claudiu
CC BY-SA 4.0
2022-11-14T14:07:54.773Z
Aha yes, it’s true that retail money was able to get zero in banks.  That because banks didn’t want to enrage the small guy.  I believe this was not true for institutional money . I see why this is confusing.
dm63
CC BY-SA 4.0
2022-11-14T17:05:14.227Z
ahh ok. yea if ECB-deposit rate is -0.5%, and a ECB-non-participant bank, needs to deposit with a ECB-participant bank, and the ecb-p bank charges them -0.75% to deposit, then I can see why the ecb-np bank would loan it out at -0.6%, cause better than the deposit ..
Claudiu
CC BY-SA 4.0
2022-11-10T17:35:19.103Z
2022-11-10T17:35:19.103Z
dm63
<p>Here is my understanding:</p>
<p>The European Central Bank (ECB) deposit rate is the interest rate the ECB gives a bank for holding a deposit with them.</p>
<p>Currently this rate is -0.5%. Which means that it costs the bank money to put a deposit with the ECB. This is presumably to encourage lending.</p>
<p>Additionally any “excess liquidity” is treated the same as a deposit to the ECB. Excess liquidity is any amount of money a bank has on its balance sheets above the reserve requirements.</p>
<p>Therefore… if a bank could lend someone money at 0.0% interest rate, then they should, because otherwise the bank is paying the ECB essentially a penalty of 0.5% .</p>
<p>This all makes sense so far. Now comes the EURIBOR 1-week rate. As I understand it, this is a rate that essentially summarizes the interest rates that bank charge to lend money to one another. So far so good. But… the Euribor 1-week rate <a href="https://www.euribor-rates.eu/en/current-euribor-rates/5/euribor-rate-1-week/" rel="noreferrer">is currently</a> -0.563% — which is lower than the deposit rate!!</p>
<p>I just can’t understand this. That means if a bank does nothing it loses -0.5% for holding a deposit, but if it lends the money out it loses -0.563%, which is more. Why would this ever happen?</p>
<p>EDIT: Not only that but the <a href="https://www.global-rates.com/en/interest-rates/ester/ester.aspx" rel="noreferrer">ESTER rate</a> - the overnight interbank rate - is -0.579% !</p>

CC BY-SA 4.0
2022-07-12T11:04:41.050Z
An educated guess:  there is a wider set of participants in the ESTR market compared to the deposit facility.
dm63
CC BY-SA 4.0
2022-07-13T12:16:45.683Z
@dm63: I have heard that as an explanation also, but could you develop the thought a bit more? It still doesn't make sense to me. The deposit facility sounds like a penalty currently -- if the bank didn't have to use it, they wouldn't, they would just leave their funds in their 'own' account with 0% interest. So if someone doesn't have deposit facility requirements, they wouldn't need to lend money at all, let alone at -0.58%...
Claudiu
CC BY-SA 4.0
2022-07-13T12:17:24.957Z
(unless there is some other aspect of the system penalizing them for holding money, more than the -0.58%?)
Claudiu
CC BY-SA 4.0
2022-07-13T12:18:57.917Z
Ohh I guess a bank could charge an entity -1% for storing funds. Then that participant would indeed want to lend it out at between -1% and -0.5% ... does this happen?
Claudiu
<interest-rate><central-banking><european-union><euro-area>
How can the Euribor 1-week rate be less than the ECB deposit rate?
Claudiu
# How can the Euribor 1-week rate be less than the ECB deposit rate?

(Asked by: username_0 on 2022-07-11)

Here is my understanding:

The European Central Bank (ECB) deposit rate is the interest rate the ECB gives a bank for holding a deposit with them.

Currently this rate is -0.5%. Which means that it costs the bank money to put a deposit with the ECB. This is presumably to encourage lending.

Additionally any “excess liquidity” is treated the same as a deposit to the ECB. Excess liquidity is any amount of money a bank has on its balance sheets above the reserve requirements.

Therefore… if a bank could lend someone money at 0.0% interest rate, then they should, because otherwise the bank is paying the ECB essentially a penalty of 0.5% .

This all makes sense so far. Now comes the EURIBOR 1-week rate. As I understand it, this is a rate that essentially summarizes the interest rates that bank charge to lend money to one another. So far so good. But… the Euribor 1-week rate [is currently](https://www.euribor-rates.eu/en/current-euribor-rates/5/euribor-rate-1-week/) -0.563% — which is lower than the deposit rate!!

I just can’t understand this. That means if a bank does nothing it loses -0.5% for holding a deposit, but if it lends the money out it loses -0.563%, which is more. Why would this ever happen?

EDIT: Not only that but the [ESTER rate](https://www.global-rates.com/en/interest-rates/ester/ester.aspx) - the overnight interbank rate - is -0.579% !

**Tags:** interest-rate, central-banking, european-union, euro-area
> **Comments:**
> **username_1**: An educated guess:  there is a wider set of participants in the ESTR market compared to the deposit facility.  
> **username_0**: @dm63: I have heard that as an explanation also, but could you develop the thought a bit more? It still doesn't make sense to me. The deposit facility sounds like a penalty currently -- if the bank didn't have to use it, they wouldn't, they would just leave their funds in their 'own' account with 0% interest. So if someone doesn't have deposit facility requirements, they wouldn't need to lend money at all, let alone at -0.58%...  
> **username_0**: (unless there is some other aspect of the system penalizing them for holding money, more than the -0.58%?)  
> **username_0**: Ohh I guess a bank could charge an entity -1% for storing funds. Then that participant would indeed want to lend it out at between -1% and -0.5% ... does this happen?  

---

## 1 answers

### Answer by username_1 on 2022-11-10. Score: 4

Update: today we have
ESTR overnight bank rate =1.40%
Euro deposit facility rate =1.50%
1week Euribor =1.39%
So the situation persists even though rates are much higher. The reason that ESTR can be lower than the deposit facility rate is that the participants in ESTR cannot all access the deposit facility. Thus, some participants make deposits at 1.40%, and some banks are able to take those deposits and rede posit them at the ECB for a 10bp profit. This is explained on the ECB website

<https://www.ecb.europa.eu/stats/financial_markets_and_interest_rates/euro_short-term_rate/html/eurostr_qa.en.html>

> **Comments:**
> **username_0**: It makes sense for positive interest rate. But not for negative interest rate. A bank’s excess liquidity is considered as a deposit when the rates are negative. So if deposit rate is -0.5% and the bank doesn’t lend it out they lose -0.5% on the money. If a participant doesn’t have access to deposit facility, and they don’t do anything with it, then they would keep it at 0% instead of losing it at -0.57% — right?  
> **username_0**: Hmmm UNLESS the non-participant has an even lower negative rate in their country. If they would lose -1% then better they deposit it at -0.57% . Was this the case?  
> **username_0**: https://stats.bis.org/statx/srs/table/l1 YES Switzerland and Denmark had even lower rates. OMG it all makes sense now  
> **username_1**: Hate to rain on your happiness, but: comparing to countries outside the Eurozone doesn’t make sense - you would have foreign exchange risk if you switched to a different currency.  
> **username_1**: Also, you cannot practically keep your money at zero Percent when the ECB has negative rates.  The only way to do this is to turn it into bank notes and store them somewhere , which is probably impractical for a large bank with  tens of billions of excess liquidity  
> **username_0**: Then it doesn’t make sense still. Why would a non participant in the EU be required to deposit at a negative rate? Is it because they deposit with a participant bank and that participar bank charges them a higher deposit fee to deposit?  
> **username_1**: If you have euros, they attract whatever the market interest rate is, positive or negative.  You can’t avoid it.  
> **username_0**: When I have euros in my bank account I get 0%. Even when the rate was negative. There needs to be some explanation for why it’s different for a non-participant in the ECB system. Why can’t they just hold the money for 0%? Without an explanation for this critical piece , it doesn’t make any sense, despite any affirmations to the contrary.  
> **username_1**: Aha yes, it’s true that retail money was able to get zero in banks.  That because banks didn’t want to enrage the small guy.  I believe this was not true for institutional money . I see why this is confusing.  
> **username_0**: ahh ok. yea if ECB-deposit rate is -0.5%, and a ECB-non-participant bank, needs to deposit with a ECB-participant bank, and the ecb-p bank charges them -0.75% to deposit, then I can see why the ecb-np bank would loan it out at -0.6%, cause better than the deposit ..  

---

