Negative central bank interest rates make sense in the euro zone, but not in the United States

The ECB has introduced negative interest rate s on its long-term repos (TLTROs) and on euro-zone banks’ excess reserves. In contrast, the Federal Reserve has maintained a slightly positive interest rate on banks ’ excess reserves. Some investors wonder whether the Federal Reserve might also move to a negative interest rate, but the answer is probably no for a structural reason: In the euro zone, companies are primarily financed by banks. A negative interest rate on banks’ refinancing the refore increases banks’ margins, which boosts credit supply; In the United States, companies are primarily financed in the bond market. What makes sense is for the Federal Reserve to reduce credit spreads by purchasing corporate bonds, thereby reduc ing corporate borrowing costs, not providing banks with refinancing at negative interest rates. The nature of corporate finance (bank- or market-based) therefore determines the nature of the central bank s ’ intervention.