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MNI SOURCES: ECB's Focus Shifts To Interest On Reserves

(MNI) LONDON
(MNI) London

Arbitrage by banks depositing TLTRO funds at the ECB may prompt changes to reserve remuneration.

True

European Central Bank officials are uneasy with what some see as excessive profits for commercial banks generated by measures originally put in place to help lenders cope with the pandemic, and are likely to consider potential changes including the possible introduction of tiered remuneration on reserves, Eurosystem officials told MNI.

Discussions on reserve remuneration could start at the Governing Council’s non-monetary policy meeting to be held in Cyprus on Oct 5, though it is not currently believed to be on the official agenda. A tiering system would restrict the proportion of reserves benefiting from rising interest rates, with a view to limiting arbitrage by banks depositing cash provided to them at negative rates under the ECB’s pandemic era Targeted Long-Term Repurchase Operations.

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European Central Bank officials are uneasy with what some see as excessive profits for commercial banks generated by measures originally put in place to help lenders cope with the pandemic, and are likely to consider potential changes including the possible introduction of tiered remuneration on reserves, Eurosystem officials told MNI.

Discussions on reserve remuneration could start at the Governing Council’s non-monetary policy meeting to be held in Cyprus on Oct 5, though it is not currently believed to be on the official agenda. A tiering system would restrict the proportion of reserves benefiting from rising interest rates, with a view to limiting arbitrage by banks depositing cash provided to them at negative rates under the ECB’s pandemic era Targeted Long-Term Repurchase Operations.

Keep reading...Show less