European Central Bank policymaker Pierre Wunsch opposed raising the minimum reserves that commercial banks must hold without remuneration. He said the case for a higher minimum reserve ratio was neither clear nor convincing. Wunsch warned that using the measure to reduce central-bank losses could turn it into a quasi-fiscal instrument. The Belgian central bank governor made the remarks at a research conference in Brussels.
The debate concerns whether banks should place more of their liquidity in non-interest-bearing reserve accounts at the Eurosystem. Minimum reserve requirements are currently calculated at 1% of specified short-term liabilities, mainly customer deposits and debt securities with maturities of up to two years. ECB data showed excess liquidity of about €2.12 trillion during the maintenance period beginning on 16 September. That liquidity was created partly through earlier asset purchases and now generates substantial interest expense when banks place funds at the deposit facility.
CENTRAL-BANK LOSSES MEET MONETARY DESIGN
Higher policy rates have increased the cost of remunerating commercial-bank deposits at national central banks. The Bundesbank has stopped transferring dividends to Germany’s federal budget and has warned that distributions may remain constrained for years. A higher unremunerated reserve ratio would reduce some interest expense, but Wunsch argued that limiting losses was not a sufficient monetary-policy rationale.
Wunsch also linked reserve policy to the credibility of future asset purchases. If banks believe liquidity created through a purchase programme could later be subjected to higher unremunerated requirements, they may be less willing to participate. His intervention therefore framed the issue as a question about the durability of the ECB’s operating tools, not only the distribution of interest income between banks and the Eurosystem.
THE DISCUSSION REMAINS OPEN
The ECB has not announced a decision to change the reserve ratio. Policymakers are assessing the proposal while inflation remains above target and market interest rates have tightened financing conditions. Any adjustment would affect bank liquidity management across the euro area and would need to be distinguished from changes to the ECB’s policy rates.
The next concrete milestone would be a formal Governing Council decision or an operational-framework communication setting out the policy purpose and calibration of any change. Until then, Wunsch’s objection demonstrates that the discussion remains contested within the Eurosystem. Banks will watch whether the ECB treats reserves primarily as a monetary instrument or also considers their effect on central-bank income.