“Higher minimum reserves are tantamount to a surcharge on banks in the euro area. They would reduce the institutions’ profits and harm their competitive position relative to banks in other financial centers. Ultimately, deposits could even be shifted to other locations that are not subject to the minimum reserve requirement,” explains Marija Kolak, President of the Bundesverband der Deutschen Volksbanken und Raiffeisenbanken (BVR) [National Association of German Cooperative Banks], on behalf of the German Banking Industry Committee. 

“The European Commission is rightly seeking to enhance Europe’s competitiveness and mobilize more private funding for growth and investment. Placing an additional burden on the European banking sector is not compatible with this aim,” says Kolak, adding that it could push up borrowing costs as part of banks’ overall cost calculations.

The GBIC believes that there are no compelling monetary policy grounds for increasing minimum reserves, which have been non-remunerated since 2023. The ECB Governing Council’s present discussions are therefore primarily aimed at reducing interest expenses for the ECB and national central banks while shifting those costs to the banking sector. The minimum reserve requirement, which is essentially a monetary policy tool, is thus increasingly being used for fiscal purposes. This is not the role of the ECB. 

The accumulated losses of some central banks in the Eurosystem are primarily a consequence of extensive bond purchases in recent years and the subsequent turnaround in interest rates. Under these bond-buying programs, national central banks mostly purchased government bonds from their respective countries. The reduction in euro area countries’ funding costs as a result of the bond purchases directly benefited their national budgets. The lower interest rates paid in those countries – in some cases persisting to this day – are the true economic reflection of the government bonds held by the central banks. 

The GBIC is strongly in favor of keeping the minimum reserves strictly tied to their monetary-policy function and not increasing them. Should it become necessary at a later date to raise the minimum reserves on monetary policy or stability grounds, this step should be taken together with a reintroduction of the interest payments that were cut in summer 2023. The GBIC believes that this is the only way of maintaining a level playing field for banks operating in Europe.