ECB debates doubling banks' minimum reserve ratio to 2%

ECB policymakers are debating raising the minimum reserve requirement to 2% from 1% of deposits, six sources told Reuters , with a decision expected by autumn.wtvbam+1
The move would reduce the Eurosystem's cost of paying 2.25% interest on excess liquidity by shifting more bank funds into unremunerated accounts.wtvbam+1
The ratio stood at 2% from the euro's launch in 1999 until it was halved in 2012; discussions remain at an early stage with no formal Governing Council vote yet.bundesbank+1

The European Central Bank is considering doubling the minimum reserves that euro-area banks must hold in unremunerated accounts, a move that would reduce the central bank's interest bill while preserving its monetary policy stance, according to a Reuters exclusive report published on Monday.

A Quiet Way to Cut Costs

Six sources told Reuters that ECB policymakers are debating raising the minimum reserve requirement to 2% from 1% of banks' customer deposits and certain other forms of funding. The reserves, which have earned zero interest since September 2023, would effectively force banks to park more cash at the central bank without compensation.streetinsider+3

The ECB and the 21 national central banks of the euro area currently pay a 2.25% interest rate on some €2.16 trillion worth of excess liquidity held in the system. By shifting a larger portion of that liquidity into unremunerated reserves, the ECB would lower its own interest expenses without formally altering its deposit facility rate, which it raised to 2.25% on June 11.wtvbam+1

The discussion comes as the Eurosystem continues to absorb losses from bonds purchased during years of quantitative easing that now yield less than the rates it pays on deposits. The move would represent a return to the 2% ratio that was in place from the euro's creation in 1999 until it was halved to 1% in January 2012.bundesbank

Early Stage Discussions

The sources cautioned that the debate remains at an early stage and has not yet been formally discussed by the ECB's Governing Council. A decision is expected by autumn.wtvbam

The proposal was reported as ECB officials gathered in Sintra, Portugal, for the central bank's annual forum. It reflects broader efforts to manage the transition away from a system flooded with liquidity during years of asset purchases. A Bank of Finland analysis from May noted that central bank reserves in the euro-area banking system are expected to continue declining through the end of 2026, with banks increasingly turning to standard refinancing operations.bofbulletin+1

For banks, the change would amount to an implicit tax on deposits, reducing the income they earn on funds currently remunerated at the deposit facility rate. The ECB explored a similar increase in 2023 but ultimately chose only to stop remunerating reserves altogether rather than raise the ratio.reuters+1

Sources (30)