ECB maintained the volume of non-interest-bearing bank reserves

ECB defies pressure: reserve levels unchanged

The European Central Bank decided on Wednesday to maintain the current level of non-interest-bearing bank reserves held at euro zone central banks, which has been the subject of controversy due to favorable treatment of the banks.

The monetary authority announced that the reserve ratio used to determine bank reserve requirements will remain at 1%.

Despite calls from a group of experts, MEPs and the German central bank to raise the interest-free reserve requirements, the ECB decided against it. This adjustment was intended to reduce the interest costs borne by central banks.

In addition to these non-interest reserve requirements, banks currently earn 4% on excess cash held in central banks' cash desks in the euro area. The volume of this excess liquidity amounts to more than €3.5 trillion, which translates into significant risk-free profits for banks.

The ECB's decision not to increase non-interest reserves was part of a broader review of its operating system, the findings of which were presented on Wednesday. The review assessed the ECB's modus operandi and recommended some adjustments.

The context has indeed changed since the days of low inflation after the 2012 debt crisis, which led the ECB to buy up mountains of private and public debt from banks and provide them with waves of cheap loans. As inflation has risen in recent years and interest rates have reached historic levels, the ECB has sought to transition banks to obtain liquidity on their own or through the money market.

To ease this transition, the ECB plans to reduce the spread between the deposit rate and the main refinancing rate to 15 basis points from the current 50 basis points starting in September. The move is designed to encourage banks to approach the ECB for weekly loans while stabilizing money market rates, which are closely linked to ECB rates.


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