Euro zone banks are advised by two top ECB officials to start using the European Central Bank for cash due to the ongoing reduction in excess liquidity within the banking system. Even with nearly 3 trillion euros in excess liquidity still available, borrowing has been minimal through the ECB's usual weekly and daily operations.
The ECB is decreasing excess liquidity by streamlining its balance sheet, yet concerns persist about the reluctance of banks to borrow from the central bank, signaling a need for a shift in mindset.
The ECB emphasized the necessity for banks to adapt to the evolving landscape of central bank reserves provision, viewing standard refinancing operations as a routine part of daily liquidity management. They stressed the importance of banks adjusting their liquidity practices to access monetary policy operations efficiently.
While the ECB has postponed its operational framework review until 2026, indicating a lack of immediate urgency, they still urge banks to proactively address changing behaviors, update IT systems, and ensure staff are equipped to handle collateral mobilization.
The ECB aims to reduce the outstanding excess liquidity to over 2 trillion euros by the end of 2025, thereby encouraging banks to be agile in acquiring central bank reserves from various sources.