The minimum reserve system primarily pursues the aims of stabilising money market interest rates, as averaging the reserve requirement over the maintenance period encourages banks to balance the effects of temporary volatility in liquidity.
The minimum reserves are stipulated with regard to the banks’ liabilities to non-banking sectors, i.e. households, corporates and government. Liabilities to other institutions subject to Eurosystem minimum reserve requirements (list), the ECB and Eurosystem NCBs are excluded. A reserve ratio of 1% is set for liabilities with a maturity of up to two years, while a ratio of 0% applies to liabilities with longer maturities.
Banks must meet the minimum reserve requirements through balances on accounts with their NCB in accordance with the ECB Regulation on the application of minimum reserves, whereby their average balance over the reserve maintenance period (which is usually six weeks) is at least equal to their requirement. The money on these accounts may be used freely for payments. Minimum reserves up to the amount of the requirement are remunerated at the main refinancing rate.
Excess reserves are remunerated at an interest rate of zero, or at the interest rate of the deposit facility if the latter is negative.
The calendar of reserve maintenance periods for each year is announced in advance. The reserve maintenance period begins on the settlement date of the first main refinancing operation following the meeting of the Governing Council of the ECB, at which a decision on ECB interest rates is taken.