http://www.zerohedge.com/news/2014-06-05...light-zone
I've been reading up on this, but doesn't such policy change the entire financial system greatly? Wouldn't this cause the repo market to die? What about people pulling money out of the banks and stuffing it into their mattresses?
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“It won’t help the prospect of a functioning money market because banks won’t be compensated for the risk they’re taking,” said Orlando Green, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. It would make more sense to lower the benchmark rate, thus reducing the interest banks pay on ECB loans, and keep the deposit rate where it is, Green said.
The ECB has lent banks more than 1 trillion euros in three- year loans, with the interest determined by the average of the benchmark rate over that period. Societe Generale SA estimates that cutting the key rate by 50 basis points would save banks 5 billion euros a year.
The deposit rate traditionally moves in tandem with the benchmark, which policy makers kept at a record low of 1 percent on June 6. Draghi said “a few” officials called for a cut, fueling speculation the bank could act next month.
I've been reading up on this, but doesn't such policy change the entire financial system greatly? Wouldn't this cause the repo market to die? What about people pulling money out of the banks and stuffing it into their mattresses?