Given those European experiences, I am sure that there are no grounds for retail deposit interest rates turning negative in Japan (Chart 12). Under a negative interest rate policy, there is no doubt that a wide range of interest rates will decline. However, this does not mean that deposit interest rates will turn negative owing to the monetary policy.
Partly as a result of the scale of concerns about counterparty risk, the ECB’s balance sheet has risen from 13 to about 20 per cent of GDP since the start of the crisis. Although unprecedented, the combination of the ECB’s bold moves and € trillion in unencumbered collateral at European banks should ensure that there is no European equivalent of Lehman.