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Change to minimum reserves remuneration seems a strange move...

ECB
  • It seems a bit of a strange move to change the remuneration of minimum reserves to zero from the deposit rate. These are reserves that bank have to hold with the central bank for regulatory requirements - so there is no direction over how much commercial banks will hold with the ECB (unlike with excess reserves).
  • It will be interesting to hear in the press conference the rationale for this move. The main impact is that it is going to hurt bank profitability - but only on a marginal scale for each individual bank as the majority of the interest they receive from the ECB is from their holdings of excess reserves. The Eurostoxx Banks index is down about 0.5% since the announcement and still higher on the day as a whole.
  • At first glance this seems an almost politically motivated move to "stop giving banks a subsidy" rather than a move that will have any operational tangible benefits for the ECB.
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