For example, the European Central Bank allows banks to place excess reserves in an interest-paying deposit facility.
Mr. Draghi said the persistent high level of excess reserves in the deposit facility is "inevitable" in the circumstances.
It is the refinancing rate that usually dictates average money market interest rates with the deposit facility rate acting as a lower floor.
The development of the Term Deposit Facility is an issue of prudent planning and should have implications for the near-term conduct of monetary policy.
In response to rate cuts early in July, European banks have mainly shifted the money from the deposit facility to the current accounts, defeating the desired effect.
The banks that borrowed from the three-year window aren't the same banks currently using the ECB's 0.25% deposit facility, he said, indicating that some circulation was taking place.
However, when central banks pay interest on reserves or a deposit facility, this interest rate is rarely the one used to set the target for short-term private sector borrowing rates.
He said the ECB was "technically ready" to take the interest rate on its deposit facility into negative territory - in other words, to charge banks to park their cash with the central bank.
For example, the ECB has a deposit facility that pays interest to banks, an emergency marginal lending facility for overnight borrowing and a weekly refinancing operation in which it lends money to banks.
On a side note: It is my hope that the Federal Reserve could find a way to use the funds received from the Term-Deposit facility program and re-purpose them through a different transmission mechanism that reaches the broader economy.
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