Today, together with a group of distinguished economists and Members of the European Parliament (MEPs), we sent an open letter to the Governing Council of the European Central Bank (ECB). Our collective call is for a thorough reassessment of the minimum reserve requirements imposed on commercial banks within the euro area. Among the signatories are academics Paul De Grauwe, Yuemei Ji, Andrea Roventini, Sebastian Diessner and Philipp Heimberger, and MEPs including René Repasi, Philippe Lamberts, Bas Eickhout, Henrike Hahn, Paul Tang and Evelyn Regner. We are also joined by the UN Special Rapporteur, Olivier De Schutter.

Commercial banks are currently reaping over €140 billion annually in risk-free profits. This windfall is largely due to the ECB high deposit facility rates and the significant reserves these banks maintain with the ECB.

This situation is in stark contrast to the minimal interest that banks offer their customers on their deposits. This discrepancy not only undermines public trust in the ECB’s monetary policy, but also exacerbates the divide between the financial sector and the general public.

We believe there are viable solutions. In the letter, we urge the ECB to consider increasing the non-remunerated minimum reserve requirements for banks. This measure would help to reduce the excess liquidity in the banking system and curb the extraordinary profits that banks are currently earning.

The ECB has previously demonstrated its capacity to implement such changes without any significant issues. In 2012, the Central Bank reduced its minimum reserve requirement from 2% to 1%, showing its adaptability to economic needs. More recently, in July 2023, the ECB established a 0% remuneration rate on minimum reserves to limit banks’ excessive profits. However, this only applies to 1% of reserves, resulting in a minimal impact.

Our letter demonstrates the increasing support for this change. We call on the members of the Governing Council, who are meeting on 25 January, to seriously consider our proposal.

Windfall profits are absolutely unacceptable, especially if they are being distributed to shareholders while ordinary citizens grapple with the rising cost of living!

The full letter and list of signatories are available here.