Minimum reserves

The minimum reserve system of the European Central Bank (ECB) applies to credit institutions in the euro area and primarily pursues the aims of stabilising money market interest rates and creating (or enlarging) a structural liquidity shortage.

The amount of minimum reserves to be held by each institution is determined by applying the reserve coefficients to the reserve base, which is the sum of a sub-set of liability categories in its balance sheet. Liabilities with a maturity of up to and including two years are subject to a coefficient of 1% and the remaining liabilities to a coefficient of 0%. The balance sheet data are reported to the national central banks within the general framework of the ECB’s money and banking statistics.

For institutions subject to full reporting requirements, the balance sheet data referring to the end of a given calendar month are used to determine the reserve base for the maintenance period starting two calendar months later.

The reporting framework for the ECB’s money and banking statistics includes the possibility of relieving small institutions of some of the reporting burden. Institutions to which this provision applies only need to report a limited set of balance sheet data on a quarterly basis (as end-of-quarter data) and with a reporting deadline which is longer than that set for larger institutions. For these institutions, the balance sheet data reported for a specific quarter are used to determine, with a lag of three months, the reserve base for the consecutive three reserve maintenance periods. For example, the balance sheet of the end of the first quarter (March) would be valid for the calculation of the reserve base for the maintenance periods beginning in June, July and August.

Each institution may introduce revisions to the reserve base used to calculate the amount of minimum reserves to be held in each maintenance period until the notification date defined for that maintenance period. The amount of minimum reserves to be held by each institution is considered final on the business day preceding the start of each maintenance period (acknowledgement date).

The reserve maintenance periods are determined in accordance with a calendar prepared by the ECB. Each maintenance period begins on the settlement day of the first main refinancing operation following the meeting of the Governing Council, at which the monthly assessment of the monetary policy stance is pre-scheduled.

In order to pursue the aim of stabilising interest rates, the ECB’s minimum reserve system enables institutions to make use of an averaging provision. Thus, compliance with the reserve requirements is checked through a comparison between the institutions’ average daily balances of overnight deposits with Banco de Portugal over one reserve maintenance period and the previously mentioned required reserves.

Holdings of required reserves are remunerated, over the maintenance period, at the average of the marginal rate (weighted according to the number of calendar days) of the Eurosystem’s main refinancing operations. Reserve holdings exceeding the required reserves to be held in each maintenance period are not remunerated.

Non-compliance with the minimum reserve obligations arises if an institution’s average end-of-calendar-day balance on its reserve account(s) over the maintenance period is less than its reserve requirement for the corresponding maintenance period. In such cases, a financial penalty shall be applied based on the amount lacking and using a penalty interest rate.

See also:

• Minimum reserve notification dates;
• Calendar of reserve maintenance periods;
• Remuneration rates and penalty rates in case of non-compliance with minimum reserve obligations for the last maintenance periods.

For more detailed information, please refer to the appropriate chapter of the document “The Implementation of Monetary Policy in the euro area” or the ECB's website.