ECB weighs doubling banks' reserve requirement to 2%

The European Central Bank is considering a significant policy shift that would require commercial banks to hold more cash in non-interest-bearing reserve accounts, according to sources familiar with internal discussions. The proposal, which remains at an early stage, would double the minimum reserve ratio to 2% from 1% of customer deposits and certain other funding.

This technical adjustment is aimed at reducing the ECB's own substantial interest expenses and managing the side effects of its prolonged campaign against inflation. By forcing banks to hold a larger share of their funds in accounts that earn no interest, the measure would lower the volume of deposits on which the central bank must pay interest. Sources indicate the change could reduce the Eurosystem's annual interest bill by nearly 4 billion euros.

That bill has grown significantly. The ECB and the 21 national central banks of the euro area are currently paying a 2.25% interest rate on approximately 2.16 trillion euros worth of excess liquidity, resulting in annual outlays of around 48.7 billion euros. The cost increased further after the ECB raised its deposit rate from 2% to 2.25% earlier this month, a move...