European Central Bank policymakers debated doubling banks' mandatory - and now unremunerated - reserves on Thursday as part of their fight against high inflation, two sources close to the matter told Reuters.
Raising banks' obligatory reserves - to 2% from 1% of deposits and some other sources of funding - would mop up more cash from the banking system and therefore contribute to the ECB's efforts to raise borrowing costs and cool inflation.
But it would also be expensive for banks, which will no longer receive interest on that cash, and reduce their pool of available liquidity.
The proposal wasn't supported by the majority of policymakers at the gathering but it might come back when the ECB reviews its overall framework for steering interest rates later this year, the sources, who spoke on condition of anonymity, said.
An ECB spokesperson declined to comment.
The ECB is currently remunerating lenders' mandatory reserves in the same way as their deposits, which are reserves held above the minimum.
On Thursday it increased the deposit rate to 3.75%, in a widely expected decision, while cutting to zero the rate on minimum reserves.
"Today's decision to reduce the remuneration on minimum reserves ... will improve the efficiency of monetary policy by reducing the overall amount of interest that needs to be paid on reserves in order to implement the appropriate stance," the ECB said.
Arne Petimezas, a senior analyst at AFS Group in Amsterdam, calculated that the decision would save the ECB some 6 billion euros a year.
"While the ECB tries to sell the move as designed to protect the singleness of monetary policy, in reality it is purely profit-driven," Petimezas said.
"The ECB is bleeding heavily on its bond portfolio (often bought at negative yields) while paying a relatively high nominal rate on banks' required and excess reserves."
The ECB requires supervised banks to hold deposits on accounts with their national central banks equivalent to 1% of specific liabilities, mainly customers' deposits. Known as "minimum" or "required" reserves, these funds have been positively remunerated until now.
Average reserve requirements in the current period total 165 billion euros, based on the ECB's liquidity analysis, whereas excess liquidity totals 3.6 trillion euros.
Thursday's change will become effective as of Sept. 20, when a new reserve maintenance period starts.
The ECB had already cut remuneration of minimum reserves in October when it started applying the deposit rate instead of the rate of its main refinancing operations.
"Since then, the efficiency aspect has risen in relevance, in line with the higher level of the key ECB interest rates," it said.
