European Central Bank Considers Doubling Minimum Reserve Requirement to 2%

The European Central Bank is considering doubling the share of bank reserves that must be held in non-interest-bearing accounts to reduce its own interest expenses and ease side effects from its anti-inflation measures. According to Jin10, six sources said ECB policymakers are discussing raising the minimum reserve requirement to 2% from 1% on banks’ customer deposits and some other funding sources. The change would help national central banks in cash-rich countries such as Germany reduce losses linked to paying interest on bank deposits held above the required level. The sources said excess deposits have risen to several trillion euros over the past decade due to bond-buying stimulus programs. The move would also absorb part of the surplus liquidity and support the ECB’s efforts to steer banks away from holding large amounts of free cash. The issue is set to be revisited in the ECB’s so-called framework review this year. The sources said a decision on the potential measure is expected before autumn. They added that internal discussions remain at an early stage and the ECB’s Governing Council has not yet held a formal discussion on the proposal.