Barclays sees limited ECB reserve requirement impact on banks

Investing.com -- Barclays analysts said an increase in the European Central Bank's minimum reserve requirement for banks would likely have a contained effect on earnings, though they view such a measure as unlikely to be implemented.

The ECB is considering raising the minimum reserve requirement to 2% from 1% of specific liabilities, according to a report from June 30 citing six sources. The discussions remain at an early stage, with a formal decision expected by autumn before any debate within the Governing Council takes place.

The minimum reserve requirement applies to specific liabilities including overnight deposits, deposits with agreed maturity or notice periods up to two years, debt securities issued with maturity up to two years, and money market paper.

Barclays' interest rates team believes these discussions are part of the scheduled review of the ECB's operational framework for implementing monetary policy. The bank expects the Governing Council will likely leave the minimum reserve requirement unchanged, similar to its 2024 decision, due to possible unintended consequences on overall monetary policy in terms of tightening.

Barclays calculated that a hypothetical increase to 2% from 1% could result in an average impact of approximately 1.0% on banks' 2027 estimated earnings per share and approximately 0.7% on 2027 estimated net interest income. The calculation is based on the last available minimum reserve requirement figures from banks and does not consider potential offsetting measures.

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