The move would cut bank income by forcing more zero-yielding cash holdings at the central bank without altering policy rates.
The European Central Bank is considering raising minimum reserve requirements for euro-area banks to 2% from the current 1%, reducing interest earnings on deposits. Required reserves, which earn no interest, would increase as a share of customer deposits and short-term funding under the proposal.
Banks currently hold 1% of certain liabilities as reserves, with excess liquidity earning interest at the ECB’s deposit facility. Reclassifying more liquidity as required reserves would eliminate interest payments on those funds, acting as a de facto tax on deposits.
The policy aims to lower Eurosystem costs tied to excess liquidity payments while avoiding formal rate cuts. Analysts say the impact on lending would likely be limited but would modestly pressure net interest income.