Minimum reserves

A tool to facilitate regulation of the money market by the Eurosystem

Within the standard framework, minimum reserves generate a demand for money on the part of banks, which encourages them to participate in the Eurosystem's refinancing operations at the set rate, or to buy on the interbank market at rates close to the one set by the Eurosystem. Once banks in the Eurosystem obtain their banking licence, they must hold minimum reserves with their central bank (i.e. they are “subject” to the minimum reserve system).

The minimum reserves of French banks are held with the Banque de France, either directly or via an intermediary.

Calculating target minimum reserve requirements and remuneration

The minimum reserve requirement ("the target") is calculated as a percentage (currently 1%) of subject bank liabilities with maturities of less than two years. To avoid dual reserve requirements, liabilities with institutions that are themselves subject to the minimum reserve system and liabilities with the Eurosystem are excluded from the reserve base.

The target minimum reserve is the amount that each bank must hold in its account each day over a maintenance period of around six weeks (the "reserve maintenance period"). Although the target is set on a daily basis, it is the average amount outstanding over the maintenance period that is included in the calculation of minimum reserves. This smoothes liquidity needs over the entire period. Reserve maintenance periods are timed to coincide with monetary policy meetings of the Governing Council of the European Central Bank.

At the end of each reserve maintenance period, minimum reserves have been remunerated at the Eurosystem deposit facility rate since 21 December 2022 (previously, the rate applied in the main refinancing operation was used), weighted by the number of days in the period.

Standing facilities

A means for banks to obtain loans or deposit liquidity overnight

Standing facilities are monetary policy operations only accessible to banks that meet the Eurosystem's financial solidity requirements, which have signed an agreement and pledged collateral ("monetary policy counterparties") with their national central bank. In France, this is covered by "the Banque de France agreement relating to access to monetary policy operations and intraday credit".

There are two standing facilities in the Eurosystem, the marginal lending facility and the deposit facility, which monetary policy counterparties can use to borrow and invest money overnight with their national central bank.

Common features of standing facilities

Standing facilities have certain common features:

Standing facilities are managed by national central banks on a decentralised basis, however the procedures for using them are identical throughout the euro area.

Guarantee and usefulness of standing facilities

Although there is no theoretical limit on the amount that can be borrowed via the marginal lending facility, as is the case with all Eurosystem credit operations, guarantees must be provided to cover the Eurosystem in the event of bank default. The deposit facility, however, is not subject to a collateral requirement.

Both facilities are used to create an infinite supply (loans) or demand (deposits) of money from banks at a given rate of interest. They therefore act as bounds on the unsecured overnight (O/N) interbank market rate, as it does not make sense for any bank to borrow at more than the marginal lending facility rate, or to lend at less than the deposit facility rate.

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Monetary Policy Implementation Division