Italian banks have been taking advantage of the European Central Bank’s new tiering system using simple arbitrage trades, October data show. Under the new system, euro area banks’ reserves have been partially exempt from the monetary authority’s negative deposit rate; until recently, Italian financial institutions were not fully using their exemption (which covers a six-times multiple of the existing reserves requirement). Now, however, they have begun borrowing at negative rates elsewhere in the euro area and simply parking this money at central banks – recent figures show that bank deposits at the Italian monetary authority increased by €37bn in October. As a result, Italy’s Target-2 balance has shifted substantially. Its net euro area interbank liabilities declined by more than €48bn, or around 10% of its outstanding volume.