ECB Considers Options to Offset Stimulus-Driven Losses

The European Central Bank (ECB) is considering several options to mitigate its financial losses. According to sources, policymakers will discuss raising minimum reserve requirements, which means increasing the amount of cash banks must keep in an unremunerated account as a buffer in case of a liquidity crunch.

Currently, commercial banks must keep 1% of their deposits and some other short-term liabilities in reserve at their respective central banks. Doubling that to 2% would save the ECB and the 21 national central banks of the Eurosystem nearly €4 billion per year, according to Reuters calculations.

The ECB could also stop remunerating some of the reserves that banks have in excess of requirements. This tiered rate would be a less painful alternative for euro zone banks, but it could create an incentive for banks with liquidity below 2% to transfer their reserves to banks that already clear that threshold.

Some within the ECB have even floated the idea of scrapping minimum reserve requirements altogether and instead charging banks fees. This option is seen as a more drastic measure and may be viewed as a central bank tool being used for fiscal policy purposes.