Overview
- Reuters and InvestingLive reported Tuesday that ECB officials are considering raising the minimum reserve requirement for euro-area banks from 1% to 2%, with discussions described as early and no formal Governing Council vote yet.
- Required reserves at the central bank earn no interest so the change would move some deposits from interest-bearing excess balances into zero-yielding reserves and is estimated to lower the Eurosystem's annual interest bill by roughly €4 billion.
- The Eurosystem currently pays about 2.25% on roughly €2.16 trillion of excess liquidity, a cost that Reuters calculated at about €48.7 billion a year and that has grown since recent rate increases.
- Banks would be forced to hold more idle, unremunerated cash at the ECB, trimming net interest income and modestly weighing on bank profitability and short-term funding decisions.
- The proposal is part of a wider ECB framework review and is seen as an operational and fiscal step to limit central-bank losses; the ECB declined to comment and a decision is expected by the autumn.