The use of a minimum reserve system by the European System of Central Banks in Stage Three: final specification
On 8 July 1998 the European Central Bank (ECB) announced the main features of the minimum reserve system to be used by the European System of Central Banks (ESCB). The main features included the range of institutions subject to reserve requirements, the liabilities included in the reserve base, the potential range of the reserve ratio, the introduction of a lump-sum allowance, and the remuneration of reserve holdings. Further details of the minimum reserve system were presented in the recently published ECB report entitled "The single monetary policy in Stage Three: General documentation on ESCB monetary policy instruments and procedures" (September 1998).
At its meeting on 13 October 1998 the Governing Council of the ECB discussed the final specifications of some of the remaining open issues regarding the minimum reserve system. The following decisions were taken:
- The ECB will apply a reserve ratio of 2%. This will refer to the following items of the liability base: overnight deposits; deposits with agreed maturity up to 2 years; deposits redeemable at notice up to 2 years; debt securities issued with agreed maturity up to 2 years; and money market paper.
- The ECB will allow a lump-sum allowance of €100,000 to be deducted from an institution's reserve requirement.
- If a credit institution cannot provide evidence of its liabilities in the form of debt securities up to two years and money market paper vis-à-vis other institutions subject to the ESCB's minimum reserve system, the ECB will allow the institution to apply a standardised deduction of 10% to the aforementioned liabilities.
An ECB Regulation on minimum reserves will be published shortly, which will lay down the features of the ESCB's minimum reserve system in a legally binding text.