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.