What are minimum reserve requirements?
11 August 2016 (updated on 27 October 2022)
Euro area banks are required to hold a certain amount of funds as reserves in their current accounts at their national central bank. These funds are called minimum reserves. Banks’ minimum reserve requirements are set for a period of six to seven weeks, referred to as the maintenance period. The amount of funds to be held is calculated on the basis of the bank’s balance sheet prior to the start of each maintenance period.
For the duration of a maintenance period, banks have to make sure that the average level of funds they hold as reserves meets their minimum reserve requirements. They do not need to hold the full amount in their accounts at the national central bank at all times. This allows banks to react to short-term changes in the money markets by adding or withdrawing funds from their reserves. In turn, this helps to stabilise money market rates.
Banks are currently required to hold a minimum of 1% of specific liabilities, mainly customers’ deposits, at their national central bank. The total minimum reserves of euro area banks are published daily on the liquidity analysis page.
At the end of the maintenance period, euro area national central banks pay interest on the minimum reserves that banks hold with them. This remuneration has historically been tied to the interest rate on the main refinancing operations (MROs). As of 21 December 2022, minimum reserves are remunerated at the rate applicable to the deposit facility. This change better aligns the interest paid on minimum reserves with prevailing money market rates.
Minimum reserves are a common monetary policy tool in central banking. However, some central banks, for example the Reserve Bank of Australia, the Bank of Canada and Sveriges Riksbank, do not use them.