The European Central Bank decided on Wednesday to leave unchanged the share of reserves of non-remunerating banks which lie dormant at the counters of central banks in the euro zone, a point which is debated because it currently favors the banks.
The reserve rate used to determine banks’ reserve requirements remains unchanged at 1%, the monetary institute announced.
A group of experts and European deputies, as well as the German central bank, had spoken out in favor of an increase in the ratio of unremunerated mandatory reserves, in order to reduce the interest bill of central banks.
Because apart from these compulsory unremunerated reserves, banks receive a rate of 4% on the liquidity they do not need and which they park at the counters of central banks in the euro zone.
These liquid assets currently amount to more than 3.5 trillion euros and provide banks with billions in risk-free profits.
The option of an increase in non-remunerated reserves was not retained by the ECB which had to decide this question as part of a review of its operational framework, the conclusions of which it presented on Wednesday.
The document reviews the ECB’s means of action and makes some adjustments.
The context has indeed changed since the years of low inflation following the 2012 debt crisis which led the ECB to buy mountains of private and public debt from banks and grant them waves of cheap loans.
This liquidity was injected into the economy, making it possible to lower borrowing costs and revive consumption and investments.
Excessive inflation over the past two years and the rise in interest rates to a historic level constitute new data.
Since banks benefit less and less from these anti-crisis programs, the ECB would like them to obtain liquidity in the future by deciding to request it themselves. Or by going to the money market, whichever is more advantageous.
To facilitate this development, the ECB will reduce the gap between its deposit rate and the main refinancing rate by 15 basis points from September, compared to 50 currently.
This will encourage banks to make their weekly loan requests from the ECB while reducing the volatility regarding rates on the money market, which are closely correlated to those of the ECB, estimates an ECB press release.