ECB Considers Raising Reserve Requirements to Ease Loss Pressure

The European Central Bank is considering several options to ease pressure from its financial losses, and the related discussions are expected to reach a key stage this autumn. According to Jin10, ECB President Christine Lagarde said policymakers will discuss raising minimum reserve requirements, which would increase the share of commercial banks' funds held in the central bank's non-interest-bearing accounts. The ECB is also evaluating a tiered interest-rate mechanism that would stop paying interest on some excess reserves, as well as charging banks fees. These measures are intended to reduce the burden on national central banks and offset part of the losses from stimulus policies over the past decade. The euro system has faced loss pressure after the ECB carried out a large-scale bond-buying program from 2015 to 2022 and paid banks substantial interest after rapid rate hikes from 2022 to 2023. According to Jin10, sources said there are still major differences over this politically sensitive issue.