ECB Reserve Plan Sparks Backlash from Banking Officials

The European Central Bank (ECB) is considering raising the minimum reserve requirement for banks from one percent to two percent of deposits, a move that could save the ECB and national central banks nearly €4 billion annually in interest costs. However, this proposal has sparked backlash from some banking officials, including Belgian central bank governor Pierre Wunsch.

Wunsch, who sits on the ECB's Governing Council, expressed his opposition to the plan, stating that it would amount to 'taxation' and give the impression that the ECB is wielding fiscal power against banks. He argued that raising the reserve requirement in combination with low interest rates would be a form of taxation.

The ECB's proposal comes at a time when eurozone central banks have been incurring losses due to extensive bond purchases. The central banks' interest expenses have exceeded their interest income from bond holdings since interest rates rose sharply in 2022. Currently, banks receive 2.25 percent interest on every euro they park beyond the required minimum.

Not everyone is opposed to the proposal, however. Expert Michael Peters from Finanzwende, a bank-critical citizens' movement, believes that there is no monetary policy reason for subsidizing banks at the expense of central bank profits and taxpayers.