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 constituted directly via bank’s accounts held with Banque de France, or via the account of an intermediary bank also held with Banque de France.
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.
In the past and until October 2022, at the end of each maintenance period, minimum reserves have been remunerated at the main refinancing operations rate. Then, the deposit facility rate was applied as the rate to remunerate these minimum reserves.
Since 20 September 2023, in accordance with the decision of the Governing Council, minimum reserves are no longer remunerated.
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:
- they may be accessed at any time,
- they are at fixed rates set by the Eurosystem (standing facility rates are part of “key interest rates"),
- they have a maturity of one day,
- there is no theoretical limit on their amount.
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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Updated on the 27th of January 2025