Resistance is growing within the European Central Bank (ECB) Council against the proposal to increase the mandatory reserve requirements for banks without paying interest on those reserves. Pierre Wunsch, the Governor of the Belgian National Bank, has publicly rejected the idea. As reported by the Handelsblatt citing informed sources, his skepticism is not unique within the ECB decision-making body.
Wunsch stated that he fundamentally disagrees with raising the minimum reserve requirement. He argued that, when combined with the lack of interest payments, the measure effectively functions as a form of taxation. Furthermore, he cautioned that the ECB could appear to be using fiscal power against banks, emphasizing that it is a “quasi-fiscal instrument” that must be handled with extreme care.
Insiders have warned against obligating banks to hold higher reserves if those reserves are not at least partially remunerated. They assert that the minimum reserve requirement is strictly a monetary policy instrument and should never be used to limit the losses of central banks.
While the banking association BdB has registered its protest, the civic movement group Finanzwende believes the action is overdue. Michael Peter, an expert at Finanzwende, wrote a letter to ECB President Christine Lagarde, stating that there is no monetary policy justification for a unilateral design of monetary policy that subsidizes banks at the expense of the central bank’s profits and the taxpayers.
