The ECB requires that credit institutions hold compulsory deposits on account with their local central bank, called minimum, or required, reserves. Reserve requirements have two functions:
- Stabilisation of money market interest rates: the averaging provision of the Eurosystem’s minimum reserve system aims to contribute to the stabilisation of monetary market interest rates by giving institutions an incentive to smooth the effects of temporary liquidity fluctuations.
- Create or enlarge a structural liquidity deficit: reserve requirements increase the demand for central bank liquidity. In order for credit institutions to fulfill reserve requirements, central banks have to provide the banking system with the necessary liquidity.
The required amount to be held by each institution is determined as a function of the institution’s reserve base. The reserve base is defined as liability items on the institution’s balance sheet, including deposits and debt securities issued. Currently, this reserve ratio is 1 per cent.
Compliance with reserve requirements
Compliance with reserve requirements is determined on the basis of an institution's average daily reserve holdings over one maintenance period. Required reserves are remunerated at the main refinancing operations rate. However, balances held in excess of requirements, i.e. excess reserves, are not remunerated. When an institution fails to meet its minimum reserve obligations, sanctions may be imposed.
Minimum Reserve Maintenance Period and Remuneration Rate
- Maintenance Period (09 July 2014 – 12 August 2014)
- Remuneration Rate: 0.15%
Indicative Reserve Maintenance Period Calendar
- An indicative calendar of reserve maintenance periods can be found here.
See Annual Reports in our Corporate Publications section for further information.