ECB Mulls Reserve Hike to Ease Losses from Past Stimulus Policies

The European Central Bank (ECB) is considering several options to mitigate its financial losses, according to four sources.

The ECB has been facing significant losses due to its stimulus policies from the last decade, which resulted in massive bond purchases that left some central banks nursing heavy losses when the ECB raised its deposit rate to combat high inflation.

The bank is looking at raising minimum reserve requirements, which would force commercial banks to keep more cash in their accounts as a buffer against liquidity crunches. Currently, they must hold 1% of deposits and other short-term liabilities in reserve; doubling this to 2% could save the ECB and national central banks nearly €4 billion per year.

Another option is to stop remunerating some excess reserves held by banks above the required minimum, effectively applying a tiered rate. This would leave euro zone banks with lower interest payments, but also give them an incentive to transfer their reserves to banks that already clear the 2% threshold.