How do the monetary policy tools of the European System of Central Banks compare to the monetary policy tools of the Fed? Does the ECB have a discount lending facility? Does the ECB pay banks an interest rate on their deposits?

There are four major monetary policy tools for central bank:

• The discount rate
• The reserve requirement
• Interest on reserves
• Open market operations

The functional framework of the Euro system consists of the accompanying arrangement of instruments: -

• Open market operations:- Open market operations assume a significant part in directing interest rates, dealing with the liquidity circumstance in the market, and flagging the monetary policy position.
• Standing facilities:- Standing facilities expect to give and retain for the time being liquidity, signal the overall monetary policy position, and bound for the time being market interest rate. Two standing offices, which are directed in a decentralized example by the NCBs, are feasible to qualified counterparties on their motivation.
• Minimum reserve requirements for credit establishments The minimum reserve system plans to seek after the points of stabilizing money market interest rates and making (or amplifying) an underlying liquidity shortage.

According to the information, the Fed can utilize four instruments to achieve its monetary policy objectives: open market functions, the discount rate, interest on reserves, and reserve necessities. Each of the four forces the number of investments in the economic plan.

• The discount rate remains the interest rate Reserve Banks applied for commercial banks for short period credits. Obtaining down the discount rate remains expansionary because the discount rate impacts another interest rate.
• Reserve necessities are the periods of depositions that banks should bear in real funds, either in their lockers or in the account at a Reserve Bank. A reduction in reserve necessities is expansionary because it produces the investments available in the economic system to lend to consumers and institutions.
• Open market functions, the purchasing, and selling of U.S. government protections have been responsible instruments. This instrument is accomplished by the Federal Reserve Bank of New York and corresponded by the FOMC
• .After the financial crisis of 2007-2009, a new tool was provided to the Fed by Congress. That is known as Interest on reserves.

The ECB has a standard lending facility. The Euro system offers credit institutions two standing facilities:

• Marginal lending facility to obtain for the time being liquidity from the central bank, against the presentation of adequate qualified assets;
• Deposit facility to make for the time being deposits with the central bank.