MNI BRIEF: Eurozone Needs To Strike Balance On Reserves - Lane

A new European Central Bank operational framework should avoid excessively scarce or excessively abundant reserves, even if they are set at an overall level lower than currently, ECB chief economist Philip Lane said on Thursday.

Speaking at the ECB's Money Markets conference in Frankfurt, Lane said he favoured a middle path that strikes "an appropriate balance between the benefits and costs associated with the creation of central bank reserves and also seems best suited to safeguard the stability of the banking and financial systems."

Lane argued a durable level of central bank reserves was required to “underpin the willingness of banks to extend credit in spite of the risks associated with illiquid assets such as bank loans in a world much more prone to macro-financial shocks,” with a sufficient provision of bank credit essential for the eurozone economy to realise its growth potential.

Talking ahead of the outcome of the outcome of the ECB's Operational Framework Review due in 2024, Lane said that from a macroeconomic perspective, it was proportionate for a central bank "to use a range of instruments to provide central bank reserves.”