To break past the zero lower bound constraint, several central banks (including the European Central Bank and the Bank of Japan) have implemented Negative Interest Rate Policies (NIRP). [1]

NIRP targets the excess reserves commercial banks park overnight at the central bank, charging a penalty fee on those balances to encourage lending:

[Bank Alpha Holds Excess Reserves] ---> Central Bank Levies 0.5% Penalty Fee ---> Bank Alpha Routes Funds to Corporate Loans

To protect commercial bank profitability, central banks use Tiered Deposit Architectures. Regulators exempt a baseline layer of mandatory reserves from the negative rate, applying the penalty fee only to excess liquidity pools. This structure encourages commercial banks to buy short-term corporate debt or expand credit facilities rather than parking idle cash at the central bank.