Global Markets Daily: Euro Area Money Markets Closer to Crunch Time

Research evidence excerpt

Global Markets Daily: Euro Area Money Markets Closer to Crunch Time

Economics Research

8 July 2026 | 5:58PM CEST

n With speculation about a possible increase in minimum reserve requirements Simon Freycenet

+44(20)7774-5017 |

(MRR) putting renewed focus on excess liquidity in the Euro area, we update our simon.freycenet@gs.com

Goldman Sachs Bank Europe SE - Paris

thinking on the path ahead for money market rates. Branch

n At a high level, we show that Euro area banks are adjusting well to a lower

liquidity environment, substituting a range of market funding to borrowing at the

ECB. But under the surface, we present evidence that liquidity may increasingly

struggle to reach every corner of the financial system.

n We argue that an increase in MRR would likely have a modest impact on money

market rates on aggregate given still ample liquidity, but one that may be uneven

as liquidity is heavily concentrated in core countries.

n Beyond this, our empirical work suggests that the upcoming liquidity drain should

exert only a gentle widening pressure on ESTR-BOR bases in a broader

environment characterized by low bank credit risk and macro-economic

uncertainty.

Euro Area Money Markets Closer to Crunch Time

Speculation about a possible increase in minimum reserve requirements (MRR) has

put renewed focus on liquidity in the Euro area and the ongoing path for QT. In the

below, we update our thinking on the liquidity environment in the Euro area and the

path ahead for money market rates.

At a high level, we think banks are adjusting well to the decline in excess liquidity.

From end-2022 onwards, they have replaced ECB funding via TLTROs with a mix of

retail funding and market funding (Exhibit 1). Market funding ranges from short-term