Discount window

A deposit facility is a way for commercial banks in the euro area, short-term excess cash at the European Central Bank (ECB ) to be created. As interest they receive the deposit rate set by the central bank. It therefore is an option for investment which is granted by the Central Bank and is an important instrument of monetary policy of the ECB dar.

The introduction of the deposit facility by the European Central Bank in Germany in their function replaces the discount policy of the Bundesbank.

Implementation

The initiative for deposit transactions is based on the commercial banks. Are these allowed on transactions with the ECB, so they can create short-term excess cash at the central bank. Due to the short maturity of such transactions is referred to this form of financing as an overnight facility or Overnight Money.

Does the bank at end of day open credit balances in the ESCB's accounts, they will automatically deposit facilities. As a price for the use of the deposit facility they receive the deposit rate (partly also deposit facility rate).

Deposit facilities offered permanent and unlimited in volume; therefore they are known as standing facility.

Classification

The deposit rate is commonly referred to as one of the three key ECB interest rates. The interest rate is set by the Governing Council and forms the lower limit of the interest rate corridor. In general, it is always a percentage point below the main refinancing rate. But these, the ECB deviated from shortly after the euro introduction and during the financial crisis from 2007. The insert is the counterpart of the marginal lending facility. Longer-term liquidity is provided to the banks, especially on the main refinancing instrument.

With the transfer of responsibility for monetary policy to the ECB deposit facility has replaced the previous Rediskontkontingenten.

Importance to the money market

The deposit facility fulfills two main functions:

The first meaning of this instrument is that the commercial banks can create liquidity and to avoid excess liquidity by itself at any time.

Second, the deposit facility has a monetary policy importance: Basically, commercial banks and the money market ( interbank market ) make overnight facilities. However, there have incurred overnight facilities inevitably more expensive ( ie higher interest rate ) than the deposit facility, otherwise come about any transactions on the interbank market. Therefore, the deposit rate is the lower limit of the interest charged for overnight facilities. Increases ( decreases ), the ECB deposit rate, as well as commercial banks will increase their interest rate for overnight facilities ( sinks) - hence the deposit rate is also used to enforce the policy interest rate in the market.

Recourse to the deposit facility of the Deutsche Bundesbank

Important key interest rates of the ECB and the Fed since the existence of the euro (1999-2013)