Euro Developed Markets: Back to the future: what higher minimum reserve requirements mean for € rates

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Euro Developed Markets: Back to the future: what higher minimum reserve requirements mean for € rates

Euro Developed Markets

01 July 2026 Citi Research

Higher MRR – so what?

A Reuters story on the ECB considering doubling bank reserve requirements

received some attention in today’s morning trading. The ECB has been paying 0%

remuneration on minimum reserves held in current accounts since September

2023: Doubling the coefficient applied to (mostly) bank customer deposits and

debt securities up to 2y maturity from 1% to 2% would lower the interest rate bill

paid on the deposit facility from some €46bn a year (at the current remuneration

rate of 2.25%) to €42. We expect a full maintenance period to pass between any

announcement around minimum reserves and its implementation.

From an excess liquidity perspective, such a measure would be equivalent to

doubling the pace of passive QT for a period of four months: be {t} the month where

excess liquidity scarcity would be reached under the current reserve requirement

setup, the doubling of the coefficient from 1% to 2% would bring such signpost

forward to {t-4}. While we are not sure that the concept of scarcity itself makes

sense under the current demand-driven framework of central bank liquidity

provision, it’s certainly possible that there exists a level of excess reserves where

cash-rich bank jurisdictions are no longer willing to supply cash (mostly on a

secured basis) to cash-constrained jurisdictions at current market prices, pushing

short-dated GC repo rates away from depo and towards refi. Under such scenario,

demand for MROs and 3m LTRO would provide the marginal unit of liquidity. We

point out that, as of end-of-May, all key bank jurisdictions (including, by a smaller