ECB Weighs Doubling Bank Reserve Requirements to Curb Losses

Commercial lenders currently hold 1% of their deposits and short-term liabilities in unremunerated accounts at their respective central banks. Increasing this mandate to 2% would effectively save the Eurosystem nearly €4 billion annually. The adjustment serves as a strategic response to the mounting interest expenses incurred since the ECB raised its deposit rate to 2.25% to combat inflation.

This policy shift targets the financial strain currently felt by national central banks in countries like Germany and the Netherlands. These institutions face significant losses stemming from the massive liquidity injections and bond purchases executed between 2015 and 2022. During that era of negative interest rates, central banks accumulated debt with low or negative yields, creating a mismatch that now results in the Eurosystem paying out roughly €50 billion per year on over €2 trillion of liquidity. Discussions on the potential implementation of the new reserve ratio are expected to intensify this autumn.