First, it should be understood that there are significant complementarities among the different individual elements. Most directly, the TLTRO-II programme directly connects the funding of banks that meet the net credit growth targets to the deposit rate.
The negative deposit rate reinforces the asset purchase programmes, with lower short-term rates further raising demand for longer-term securities.6 In addition, even if the banking system collectively must hold the extra liquidity created by the ECB’s accommodative conventional and unconventional monetary policies, the negative deposit rate provides an incentive for individual banks to recycle liquidity holdings through increased interbank lending, expanded lending to the real economy and the purchase of longer-term securities (Praet 2016).