Holzmann (ECB) for a large increase in the controversial minimum reserves for banks

Berlin (Reuters) – ECB Council member Robert Holzmann is calling for a massive increase in the minimum reserves of commercial banks at the ECB of up to ten percent.

“I suggest that the banks deposit more money with us without interest as minimum reserves, as was the case in the past,” the governor of the Austrian National Bank (OeNB) told WirtschaftsWoche according to the preliminary report on Wednesday. “I’m thinking five to ten percent.” The European Central Bank’s (ECB) minimum interest-free deposit for commercial banks is currently one percent of customer deposits. Holzmann expects that the monetary authorities from Frankfurt would not endear themselves to the industry with such a step: “Of course, this will now lead to an outcry among the banks.”

The Federal Association of German Banks (BdB) vehemently rejected such a step on Tuesday. “A higher, interest-free minimum reserve acts like a tax on bank deposits,” said BdB managing director Heiner Herkenhoff. “This means banks have less leeway to offer savers higher interest rates.” The ECB’s decision to no longer pay interest on the minimum reserve will reduce the interest income of European banks by 6.6 billion euros in the next twelve months. For German institutes this amounts to 1.8 billion euros.

Holzmann assumes that he will find allies for his position on the ECB Council. “I suspect that one or two people have sympathy for my point of view.” Holzmann justifies the move by saying that the banks benefited significantly from the ECB’s unconventional monetary policy during the crisis. “If we are forced to take similar measures again in the future, we will need reserves in our balance sheet,” said the Austrian. If the ECB Council takes a decision, the minimum reserve could be increased “in principle very quickly”.

Commercial banks in the euro area currently have to hold a minimum reserve – i.e. a certain amount of money in a checking account – of one percent of their customer deposits with the central bank. They have recently stopped receiving interest from the ECB. In addition to Holzmann, several ECB currency watchdogs are, according to insiders, toying with raising the minimum reserves. This would remove liquidity from the banking system. According to insiders, some euro watchdogs are in favor of raising the reserve requirement ratio to a value closer to three or four percent.

(Report by Klaus Lauer; edited by Kerstin Dörr – If you have any questions, please contact our editorial team at [email protected] (for politics and economics) or [email protected] (for companies and markets).)