ECB Eyes Reserve Hike to Cut Financial Losses

The European Central Bank (ECB) is exploring ways to reduce its financial losses, including raising minimum reserve requirements. According to Reuters, citing four sources familiar with ongoing ECB discussions, options being considered include increasing how much cash banks must hold in unremunerated accounts, charging banks fees for their excess reserves, or not paying interest on the reserves.

Currently, commercial banks are required to hold one percent of their deposits in reserve at their central banks. Doubling this requirement to two percent could save the ECB and all 21 central banks in the Eurozone nearly €4 billion per year, Reuters reported.

ECB President Christine Lagarde said that a final decision on raising minimum reserve requirements is likely to be made in the autumn. If the ECB decides not to raise minimum reserve requirements, it could opt to charge banks fees directly or stop remunerating commercial banks for reserves that are excess to the regulatory minimum.