European Central Bank policymakers are reviewing the interest the bank pays on government cash deposits, including a potential cut, to try and rein in...
FRANKFURT - European Central Bank policymakers are reviewing the interest the bank pays on government cash deposits, including a potential cut, to try and rein in mounting losses resulting from its fight against inflation, two sources told Reuters.
Governors worry that slashing the interest they pay on public cash would simply cause governments to switch to commercial banks, which would then park that money back at the ECB for even higher remuneration, according to the sources.Policymakers will likely revisit the topic next year, the sources said, when the ECB is also due to tackle the broader issue of the excess cash sloshing around the banking system.
The issue may now turn out to be political as well as financial. Commercial banks have seen their profits soar thanks to the ECB's high interest rates, attracting public criticism and even taxes from governments in Lithuania, Spain and Italy. ECB President Christine Lagarde said last week the central bank does "not have as a purpose to show profits or to cover losses", adding policymakers had not discussed raising the share of banks' unremunerated reserves.
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