Excess reserves

Excess reserves is the name given to credit institutions’ deposits on current accounts with the central bank beyond the required reserves. These deposits are remunerated at 0.00% or the interest rate on the deposit facility if this is negative.

The Eurosystem’s accommodative monetary policy operations saw the aggregate stock of excess reserves in the banking sector increase sharply in size. To support the bank-based transmission of monetary policy, while preserving the positive contribution of negative rates to the accommodative stance of monetary policy, the ECB Governing Council decided on 12 September 2019 to introduce a two-tier system for remunerating excess reserve holdings. This decision entered into force with the maintenance period starting on 30 October 2019. Thus, if the deposit facility rate was negative, a certain portion of monetary policy counterparties’ excess reserves is remunerated at 0.00% instead of a negative interest rate. The amount remunerated at a higher rate than the negative deposit facility rate was linked to the individual counterparty’s minimum reserve requirements and was calculated as a multiple thereof, with the ECB Governing Council setting both the multiplier and the remuneration rate applicable to that amount.

Following the raising of the deposit facility rate to above zero, the two-tier system for the remuneration of excess reserves is no longer necessary. The Governing Council therefore decided on 08 September 2022 to suspend the two-tier system by setting the multiplier to zero. This is effective from 14 September 2022.

Balances held at the deposit facility are always remunerated at the deposit facility rate, however.