Negative interest on excess reserves

The European Central Bank and central banks of other European countries, such as Sweden, Switzerland, and Denmark, have paid negative interest on excess reserves—in effect taxing banks for exceeding their reserve requirements—as an expansionary monetary policy measure.[6][7][8][9][10]

Negative rates in Europe have been controversial. Ambrose Evans-Pritchard of the London Telegraph has described them as a "calamitous misadventure."[11] Economists for the European Central Bank argue that across the euro area, loans from banks to corporations have become less expensive since negative rates were adopted.[12]

In January 2016, the Bank of Japan followed European central banks and lowered its interest rates below zero, after several years of keeping them at the lower end of the positive range.[13] The existing balances will keep on yielding a rate of 0.1 percent; the reserves that banks are required to keep at the BOJ will have a rate of zero percent, and a rate of minus 0.1 percent will be applied to any other reserves.

The staff of the U.S. Federal Reserve prepared a memo for the Federal Open Market Committee in August 2010 evaluating the possibility of lowering the interest rate that the Fed paid on bank reserves to zero or below.[14] The staff was lukewarm on the idea, and it was never adopted in the U.S. Former chairman of the Federal Reserve Ben Bernanke has argued that "negative rates appear to have both modest benefits and manageable costs" and "modestly negative" interest rates should be an option for the Fed to consider if it ever again confronts a very weak economy at a time when short-term interest rates already have been cut to zero.[15]