ECB to Discuss Raising Banks' Minimum Reserve Requirements
Alina Collins
ECB President Lagarde confirmed on July 23 that the bank will discuss raising minimum reserve requirements for commercial banks; a move from 1% to 2% could save the Eurosystem roughly €4 billion a year in interest costs while squeezing banks' net interest income.
What exactly did Lagarde say?
Lagarde said after the rate meeting that minimum reserves were not discussed this time, but "will be discussed — they have been discussed before."
The ECB held rates unchanged at this meeting; the reserve question was deferred.
This means → Lagarde is signaling publicly that the direction is set — only the timing remains open.
Where does the saving come from?
Commercial banks must currently deposit 1% of their deposits and certain short-term liabilities at their national central bank, earning zero interest; any excess earns the ECB's deposit rate — currently 2.25%.
In plain terms = money banks park at the central bank sits in two layers: minimum reserves (mandatory, no interest) and excess reserves (voluntary, interest-bearing).
The Eurosystem currently pays nearly €50 billion a year in interest on over €2 trillion of liquidity.
Reuters estimates that raising the ratio to 2% would save the ECB and its 21 national central banks a combined ~€4 billion a year.
Why move on this now?
Between 2015 and 2022, the ECB bought bonds on a massive scale under negative rates to stimulate the economy, flooding the system with liquidity.
When rates rose sharply in 2022–2023 to fight high inflation, national central banks holding low- or negative-yield bonds — notably Germany's Bundesbank and the Dutch central bank — swung into sustained losses.
This means → the immediate goal of a higher reserve ratio is to cut the Eurosystem's own interest bill and ease the loss pressure on those national central banks.
What does this mean for banks?
A doubled reserve ratio forces banks to lock up more funds at zero interest, directly shrinking the pool of excess reserves that earn the deposit rate.
In plain terms = the "no-interest" layer of what banks hold at the central bank gets thicker, and the "interest-bearing" layer gets thinner — net interest income falls.
Reuters, citing people familiar with the matter, reports a decision is expected this autumn; the policy window is approaching.
Content is for reference only, not financial advice.