2015-10-05 — bawerk.net
If the interest received  go negative (and markets drop) it is easy to see that the cost of maintaining excess reserves will easily outweigh the benefits. The holder will thus refrain from keeping reserves at the Fed. This will in turn break the collateralised re-hypothecated chain, which will lead to widespread deflation (just as the QE's wreaked havoc with the shadow banking system) and a general market sell-off through a fall in collateral velocity and leverage.
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The European experience with NIRP is exactly what the Fed is looking for. Releasing excess reserves to buy the TSYs being sold by panicking emerging markets. In addition, the mere mentioning of NIRP could actually deter further dollar strength.
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