The two-tier system (TTS) consists of applying a different interest rate of remuneration to part of the excess reserves held by institutions on their current account. The aim of the two-tier system is to leave part of the excess reserves free of negative remuneration in a context where the deposit facility rate is below 0%. At present, as the deposit facility rate is above 0%, the two-tranche system has become ineffective.
With the specific aim of supporting the transmission of monetary policy through banks while preserving the positive effects of negative interest rates on the monetary policy stance (see What do negative interest rates mean?), at its meeting on 12 September 2019 the Governing Council of the European Central Bank (ECB) approved the introduction of a two-tier system (TTS) for the remuneration of the reserves that banks hold on current accounts with their national central banks.
The two-tier system was applied since 30 October 2019 until 8 September 2022. The Governing Council decided that the exempt tier would be equal to six times (multiplier) the minimum reserves and remunerated at 0%. The multiplier was the same for all banks and is set such that euro short-term money market rates were not unduly influenced. It may be adjusted over time in line with changing levels of excess liquidity. The remuneration may also be adjusted by the Governing Council if deemed necessary. The second (non-exempt) tier comprised all the excess reserves held by banks in their current accounts exceeding that threshold and continued to be remunerated at 0% or the deposit facility rate, whichever is lower (see the Diagram).
The two-tier system did not apply to holdings at the Eurosystem’s deposit facility or to the reserves held in other central bank accounts that were not used to fulfil minimum reserve requirements.
Following the raising of the deposit facility rate to above zero, the two-tier system for the remuneration of excess reserves was no longer necessary. The Governing Council therefore decided in its monetary policy meeting of 8 September 2022 to suspend the two-tier system by setting the multiplier to zero (see press release
).