ECB Mulls Reserve Hikes to Offset Stimulus Losses

The European Central Bank (ECB) is exploring various options to mitigate its financial losses. According to four sources, the ECB is considering raising minimum reserve requirements, which would require commercial banks to keep more cash in an unremunerated account as a buffer in case of a liquidity crunch.

Currently, banks must keep 1% of their deposits and some other short-term liabilities in reserve at their respective central banks. Doubling this requirement to 2% could save the ECB and the 21 national central banks of the Eurosystem nearly €4 billion ($4.55 billion) per year.

Another option being discussed is stopping remuneration on excess reserves, which would force some banks to raise cash or transfer their reserves to other banks that already exceed this threshold.

Some ECB policymakers have also floated the idea of scrapping minimum reserve requirements altogether and instead charging banks fees. However, raising the deposit rate has been criticized for using a central bank tool to achieve a goal related to fiscal policy rather than monetary policy.