NoC129/10 OfficialJournaloftheEuropeanCommunities 10.5.93
OpiniononMinimumReservesintheContextoftheInternalMarket
(93/C129/07
On23November1992theEconomicandSocialCommittee,actingunderthefourthparagraph
ofArticle20ofitsRulesofProcedure,decidedtodrawupanOpiniononMinimumReserves
intheContextoftheInternalMarket.
TheSectionforEconomic,FinancialandMonetaryQuestions,whichwasresponsiblefor
preparingtheCommittee'sworkonthesubject,adopteditsOpinionon9March1993.The
RapporteurwasMrMeyer-Horn .
Atits304thPlenarySession(meetingof24March1993),theEconomicandSocialCommittee
adoptedthefollowingOpinionunanimously .
Introduction 1.3.Sincethebeginningofthe1980stheso-called
open-marketpolicy—i.e.thepurchaseandsaleof
securitiesandcertificatesofdepositbythecentralbanks
—hasplayedanevergreaterrole.Theopen-market
transactionsofthecentralbankshavehadfarmore
impactonbankliquidityandthemoneysupplythan
minimumreservespolicy.1.Eveninthe1960stheform,useandeffectiveness
ofmonetarypolicyinstrumentswasbeingdiscussedin
theEuropeanCommunity .InAugust1962theMonet­
aryCommitteepublishedastudyon'TheInstruments
ofMonetaryPolicyintheCountriesoftheEuropean
EconomicCommunity'.Inittheminimumreserves
policyintroducedinthepost-waryearsinmostEC
MemberStateswascomparedwiththeopen-market
policyandtherefinancingpolicyofthecentralbanks.
Thestudystatesthat:'Theminimumreservessystem
enablesthemonetaryauthoritiestoactdirectlyonbank
liquidity,andthusontheiriabilitytoprovidecredit.
Thepolicyofminimumreservesisthusausefuladdition
todiscountandopen-marketpolicies,whichtendmere­
lytomodifythecompositionoftheaggregateliquidity
ofthebanks'(Chapter5,point38).1.4.Comparedwithopen-marketpolicy,central
bankrefinancingofbanksbytherediscountingofbills
andthroughloansagainstsecurities(Lombardloans)
hasalsolostground;clearlythecomplicatedandcostly
creditratingentailedhasplayedapartinthis.Onthe
otherhand,centralbankrediscountingofbillsand
loansagainstsecuritiesplayanimportantroleforthe
smallerbanksandhencefortheborrowingoftheir
smallandmedium-sized businesscustomers .
1.1.ThirtyyearsoninanenlargedCommunitythe
roleofminimumreservespolicyislessclear-cut.There
isamarkedalignmentbetweentheMemberStatesin
theuseofmonetarypolicyinstruments,althoughthe
centralbankscontinuetousetheirmonetarypolicy
instrumentsindifferentwaysinaccordancewiththeir
owntraditions,duetodifferencesinthestructureof
theirbankingsystemsandtheparticularpreferencesof
centralbankdirectors.1.5.Theobligationofbankstomaintainminimum
reservesatthecentralbankisstillusedasamonetary
policyinstrumentinmostMemberStates.Thesemini­
mumreservesarecalculatedindifferentwaysand
changedwithvaryingdegreesoffrequency.Theques­
tioniswhetherthisiscompatiblewiththeSingleMarket
completedon1January1993andtheEconomicand
MonetaryUnionprovidedforintheMaastrichtTreaty,
underwhichaEuropeanMonetaryInstituteistobe
establishedfromJanuary1994andaEuropeanSystem
ofCentralBankswithacommonmonetarypolicyfor
theCommunityfrom1997or1999.
1.2.Besidestherequirementtokeepaminimum
balancewiththecentralbank,therewereother,similar
obligationswhichbankshadtorespect,namelymini­
mumportfoliosofgovernmentsecurities.Thepurpose
wastoprevent,inthepost-waryears,amobilization
ofthehighvolumeofgovernmentbondsinthebanks'
portfolios.Untilveryrecentlyinsomecountries—
namelySpain,Portugal,ItalyandGreece—themanda­
toryinvestmentsofthebanksingovernmentsecurities
helpedtofinancethepublicbudgetdeficitthroughthe
centralbank.1.6.Therolealignmentandfutureofminimum
reservespolicyisimportantforthenationalcentral
banks,whicharetoformpartofaEuropeanSystem
ofCentralBanks.Inamonetaryunionwithacommon
ECmonetarypolicy,minimumreservespolicywillbe
setbytheGoverningCounciloftheEuropeanCentral
Bank,rulingoutnationaldifferences.Evenbeforethe
thirdstageofmonetaryunion,thesubstantialdiffer­
encesinnationalbankmethodsofcontrollingbank

10.5.93 OfficialJournaloftheEuropeanCommunities NoC129/11
euromarket,butitcanimpedethemonetarypolicyof
thecentralbanks,whichexplainstheUSinitiativeinthe
1980sforaninternationally agreedminimumreserve
requirement (seepoint2.6).Furthermore ,highmini­
mumreservesintheMemberStatesaffectcompetition
betweenECbanksandbanksinnon-ECcountries.
Resortingtotheeuromarkethasanadverseeffecton
centralbankmonetarypolicy.liquidity—andhencethemoneysupply—willprove
difficulttoreconcilewithincreasinglyclose-knitmoney
andcapitalmarkets.Aslongasthenationalcentral
banksremainresponsiblefortheirownmonetarypolicy
in.theinternalmarket,nationaldifferencesintheappli­
cationofminimumreserverequirementsandinopen­
marketpolicywillaffectmonetarypolicyinother
countriesandresultindependency,withtheinevitable
consequencesforbusinessandconsumers.
1.6.1.Consequently ,since1992aworkingpartyof
theECCommitteeofCentralBankPresidentshasbeen
preparingthegroundformonetarypolicyoftheEuro­
peanSystemofCentralBanks(ESCB),inparticularthe
developmentofobjectivemonetarypolicyindicators
andcompatiblemoneysupplytargets.Alsobeingdis­
cussedarecomparablemoneysupplydefinitions,the
alignmentofmonetarypolicyinstrumentsandtherole
ofminimumreserves.1.8.Thecircumstances describedinpoints1.5to1.7
havespurredtheEconomicandSocialCommitteeto
putforwardsomeobservationsonminimumreserves
policyintheEuropeanCommunityandtodrawsome
conclusions .ThisOpinionconfinesitselfessentiallyto
thecompetitivesituationofbanksontheinternalmar­
ket.Itdoesnotgointotheinterplaybetweenminimum
reservespolicyandothermonetarypolicyinstruments,
orthe'mix'ofmonetaryandfinancialpolicyatmacro­
economiclevel.Rather,theOpinionisintendedasa
contribution tothecurrentdiscussionsofthecentral
bankpresidentsonminimumreservespolicy,especially
thoseoftheworkingpartyreferredtoinpoint1.6.1.
TheCommitteeis,however,awareofthelinksbetween
minimumreservepolicyandtheuseofothermonetary
policyinstruments .Theselinksareillustratedbythe
measurestakenbytheBundesbankinFebruaryand
March1993simultaneously inseveralareas—reduction
inminimumreserves,offerofadditionalmoneymarket
paper,securities-pensions transactionsatlowerinterest
ratesandreductionofcentralbankdiscountandLom­
bardrates.Themonetarypolicyofacentralbank
whichreliesentirelyonopen-markettransactionscan
eventaketheformofhigherinterestratesthanwould
resultifminimumreserveswerehighatthesametime.
AsfarascurrentinterestratepolicyintheCommunity
isconcerned,theCommitteewouldrefertoitsOpinion
ontheannualeconomicreport(CES213/93,point3.7).1.6.2.UnderArticle109foftheTreatyonEuropean
UnionsignedinMaastrichton7February1992,the
EuropeanMonetaryInstitute(EMI)tobeestablished
inJanuary1994willhavethetaskofpreparingthe
instrumentsandproceduresnecessaryforcarryingout
asinglemonetarypolicyinthethirdstageofmonetary
union.
1.7.Thealignmentofminimumreserverequire­
mentsisimportanttobanksevenbeforemonetary
union,i.e.intheSingleMarket(asofJanuary1993)
andintheEuropeanFinancialArea.Thereisincreased
competitionbetweenthebanksthemselvesandwith
theso-callednon-banksandnear-banks .
2.Differentwaysofapplyingminimumreservespolicy1.7.1.Differingnationalminimumreserverequire­
mentsareacostfactorwhichinfluencesinter-bank
competition .Certaindeposits(onwhichtheymustpay
interesttotheircustomers)arenotavailabletothe
banksconcerned .Thismeansalossofrevenueanda
constraintontradingpolicy.Tothisextentthosebanks
whicharesubjecttominimumreserverequirementsare
atadisadvantagecomparedwiththeircompetitorsin
othercountrieswhohaveno—orlessonerous—obli­
gations.2.1.Theintroductionofcompulsoryminimum
reserveswasoriginallyjustifiedinsomecountrieson
prudentialgrounds.Accordingtothisargument,the
obligationtoholdminimumreservesatthecentral
bankensuredthatbanksmaintainedacertainlevelof
liquiditywithwhichtheycouldcoverthewithdrawal
ofdepositsbycustomers.Thisargumentnolonger
seemsvalid.1.7.2.Suchsubstantialobligationsmeanthatnon­
banks,suchaslargecorporations ,prefertoinvesttheir
liquidassetsontheeuromarketwheretheyavoidany
oftheminimumreserverequirements .Inthisway
depositsaretakenawayfromthosebankswhichare
subjecttohighminimumreservesintheirowncountry.
Withfreemovementofcapitalthereisnothing
inherentlywrongwiththeincreasinginvestmentinthe2.1.1.Surveillanceofbanksolvencyisprimarilythe
responsibilityofthesupervisoryauthorities .Thus,for
instance,ithasbeenadmittedthattheminimum

NoC129/12 OfficialJournaloftheEuropeanCommunities 10.5.93
affectcompetitionbetweenthebanksoftheindividual
MemberStates(seeappendedtable).
2.3.Thedifferencesinminimumreservespolicyalso
involvemethodsofassessment,varyingminimum
reservesratiosaccordingtotypeofdepositandthe
frequencywithwhichtheminimumreservesratiosare
changed.reservesintroducedbytheBancaaItaliain1926on
prudentialgroundshavesince1975beenusedsolelyas
aninstrumentofmonetarypolicy.
2.1.2.IntheEuropeanCommunitycreditinstitutions
mustrespectcertainliquidityandsolvencyratiosirres­
pectiveofcentralbankmonetarypolicy.Asaresultof
thealignmentoftheprovisionsonbanksupervision,
creditinstitutionsmustadheretothesameratiosinall
theMemberStates—basedontherecommendations of
theBaselCommitteeofCentralBankPresidents (Cooke
Committee )—andinnon-ECcountries.Inaddition,
depositguaranteeschemesaretobeobligatoryinall
MemberStates(!).
2.2.InfourofthetwelveECMemberStatesmonet­
arypolicyisnotusedasanargumentforminimum
reserves :
—LuxembourgandDenmarkhavenominimum
reserverequirementsatall,2.3.1.Forsightdeposits,timedepositsandsavings
depositsthereareinsomecasesdifferentminimum
reservesratios,insomecasesthesameminimum
reservesratioforallcategoriesofdeposit:
—inGermany,forinstance,theminimumreserve
requirementsaregraduatedforsightdeposits
(accordingtothetotalvolumeofdeposits,from
6,6%forsightdepositsuptoDM10million,upto
12,1%forsightdepositsoverDM100million)and,
uptoFebruary1993,4,95%fortimedepositsand
4,15%forsavingsdeposits(sincethenauniform
2%fortimeandsavingsdeposits)(inAustria,Japan
andtheUSA,too,thereareminimumreserveratios
whicharegraduatedaccordingtothetotalvolume
ofdepositsandwhichfavoursmallerbanks);
—inSpain,ontheotherhand,theminimumreserve
ratioisauniform3%foralldeposits(inaddition
totheafore-mentionedminimumreserve-likecom­
pulsoryinvestments,seepoint2.4).—inBelgiumthecentralbankislegallyentitledto,
butdoesnot,pursueaminimumreservespolicy,
—inGreatBritainthe—few—minimumreserve
requirementsarenotusedformonetarypolicy,but
merelyasasourceofrevenuefortheBankof
England.
2.2.1.IntheeightMemberStateswhereminimum
reservesarejustifiedongroundsofmonetarypolicy,
thetrendoverrecentyearshasbeentoreducethe
minimumreservesratios.Forinstance,theminimum
reservesratioswerereduced:
—inFrancebetweenOctober1989andMay1992
from5,5to1%forsightdeposits,from3to1%
forsavingsdepositsandfrom3to0%fortime
deposits,
—inSpainbetweenFebruary1990andDecember1992
from5to3%[thoughminimumreserve-likecom­
pulsoryinvestmentsremain(seepoint2.4)],
—inGermanyinFebruary1993from4,95to2%for
timedepositsandfrom4,15to2%forsavings
deposits,
—inItalyinFebruary1993thehighestratefrom22,5
to17,5%.
2.2.2.Overalltheimportanceofminimumreserves
hasdiminishedmarkedlyintheCommunitycompared
withthemoneysupplyandbanks'totalassets.Butas
theSingleMarketcomesintooperationatthebeginning
of1993therearestillconsiderabledifferencesinmini­
mumreservespolicywithintheCommunitywhich2.3.2.Agraduationofminimumreservesratios
accordingtotypeofdepositcanbejustifiedonthe
groundsthattheaccessibilityofthedepositsvaries.
Manycentralbanks,however,havebeenprompted
byotherreasonstovarytheminimumreservesratios
accordingtotypeofdeposit:
—theBanquedeFrance,forinstance,changedthe
minimumreservesratiosfortimedepositsin1989
and1990asareactiontotheunwantedswitching
frominvestmentsinsecuritiestomoneymarket
paperandtotheflightofassetstooff-shorefinancial
centresandinMay1992changedthemasareaction
totheinterest-ratepolicyoftheDeutscheBundes­
bank,
—tocounteranunwanted(fromthepointofview
ofmonetarypolicy)increaseintheassetsofnon­
residents,theLawontheDeutscheBundesbank,for
instance,expresslyprovidesforthepossibilityof
100%minimumreservesfortheassetsofnon­
residents.TheDeutscheBundesbank lastavailed
itselfofthisfacilityin1978tostemtheinflowof
foreignexchangeatthattime,
—in1987and1989theBancad'Italiaimposedmini­
mumreserverequirements ontheatthattime
unwantedholdingofassetsinforeigncurrencies. (!)OJNoC332,16.12.1992.

10.5.93 OfficialJournaloftheEuropeanCommunities NoC129/13
budgetdeficitviathecentralbank.Bearinginmind
thatitwasagreedinArticle104(1)oftheTreatyon
EuropeanUnionthatbudgetdeficitsshouldnolonger
befinancedbythecentralbanks(seepoint3.5),this
formofminimumreservespolicywouldappearout­
modedandnolongerpermissiblefromJanuary1994
[Article109e(3)1.2.3.3.UnderthetermsoftheSingleMarket,the
reasonscitedinpoint2.3.2foradifferentiation of
minimumreserverequirementsseemdubious.Inthe
internalopen-frontiermarketthemovementofmoney
andcapitalandswitchesininvestmentsbecauseof
interestratedifferentialswilltendtoincrease,making
itmoredifficultforindividualcentralbankstopursue
aseparateminimumreservespolicy.
2.5.Asarulethebanks'minimumreserveswiththe
centralbankdonotreceiveinterest.Accordingly,banks
inthecountriesconcernedsufferalossofincome.To
thisextentminimumreservesconstituteakindoflevy
onthebankswhichvariesinlinewiththemarket
interestrateswhichtheywouldotherwisehavereceived
hadtheybeenabletoplacethetiedfundsonthemoney
market.2.3.4.Somecentralbankschangeminimumreserve
ratiosveryoften,someonlyseldom.IntheNetherlands,
forinstance,theminimumreserveratioswerechanged
morethantwentytimesin1990,withtheresultthat
theminimumreservesofthebanksfluctuatedby12000
millionguilders.InGermany,ontheotherhand,mini­
mumreserveratioshavebeenchangedonlythreetimes
between1980and1993,inItalynotatallbetween1984
andFebruary1993.Thefrequentalterationofratiosin
theNetherlandsisputdowntothefactthatthecentral
bankishardlyabletopursueanopen-marketpolicy
onaccountofthelowvolumeofsuitableNLG-paper.2.5.1.Insomecountriesminimumreserveswiththe
centralbankreceiveinterest,namelyintheNetherlands,
GreeceandItaly.InGreeceandItaly,however,the
interestisatfarbelowmarketrates.Inthecaseof
Greece,thelowinterestappliestoonlyhalfthecompul­
soryminimumreserves,i.e.to4,5%ofdeposits.The
6%interestonthecompulsorydepositsoftheSpanish
banksincentralbankcertificatesofdepositisonly
abouthalfthemarketrate.Henceeveninthesefew
caseswhereminimumreservesbearmoderateinterest,
thebankssufferalossofrevenue.2.3.5.Thereferenceperiodforminimumreserves
alsovariesfromonecountrytoanother.Minimum
reserverequirementsarefulfilledprimarilyonthebasis
oftheaveragedepositatthecentralbankoverarefer­
enceperiod.Thusashortfallintheminimumreserves
requirementatthebeginningofthereferenceperiod
canbeoffsetbyanexcessattheendoftheperiod(or
viceversa).Shortfalls/excessescanalsosometimesbe
carriedovertothenextreferenceperiod.Thereference
periodisusuallyonemonth,butcanbeshorter(10
days)orbeaslongassixmonths.Thesometimes
complexcalculationofandadherencetotheminimum
reservesrequirementcanhamperthecommercialpolicy
ofbanksinthecountriesconcerned .2.5.2.TheDutchcentralbankpaysintereston'nor­
mal'minimumreserves(moneymarketreserverequire­
ments—GKR),butslightlybelowmarketrates.In
addition,fromtimetotime'fictitious'minimum
reserves(monetaryreserverequirements—MKR)have
beenimposedonanexceptionalexpansionofbusiness
bythebanks.Theminimumreserveswere'fictitious'
insofarastheydidnothavetobekeptintheformof
abalanceatthecentralbank,butobligedthebanksto
paythemarketinterestratesontheseamountstothe
centralbank.
2.5.3.Thelossofincomesufferedbythebanksfrom
non-orlow-interest-bearing minimumreservesputs
thematadisadvantageinthisrespectvis-a-visnon­
banksandnear-banks.Largecorporations,especially
multinationals ,canpracticeprofit-oriented cashman­
agementandinvesttheirliquidfundsin'freeports'
(wherebanksarenotsubjecttominimumreserve
requirements )andontheEuro-moneymarket(free
fromdirectbanksupervisionandtheguidinginfluence
ofcentralbankmonetarypolicy).2.4.InsomeMemberStatesthecentralbankobliges
bankstoinvestinsecuritiesandcertificatesofdeposit;
thisissimilartoaminimumreserverequirement .These
compulsoryinvestmentsplayaparticularlyimportant
roleinSpain.In1990theSpanishminimumreserves
requirement—then17%—wassplitintoacashholding
of5%tobeginwithandanobligatoryinvestmentin
centralbankcertificatesofdepositandinTreasurybills
(investmentratio).AsatSeptember1992,forinstance,
thedepositsoftheSpanishbanks(18,826billionpeset­
as)weresubjecttoatotalminimumreserverequirement
of18,1%,i.e.3,408billionpesetas.Ofthis,854000
millionpesetaswasinnon-interest-bearing deposits
withtheBancod'España,1,737billionpesetaswas
investedincentralbankcertificatesofdeposit(with
6%interest),and817000millionpesetasinother
obligatoryinvestments,mainlyTreasurybills.These
compulsoryinvestmentsmeanthattheSpanishbanks
arevirtuallyobligedtohelpfinancetheSpanish2.5.4.Bankssubjecttominimumreserverequire­
mentssufferalossofincomewhichtendstomake
borrowingfromthemmoreexpensiveandtheinterest

10.5.93 NoC129/14 OfficialJournaloftheEuropeanCommunities
paidondepositswiththemlower.Tothisextentdeposi­
tors,smallsaversespecially,andborrowersincountries
withrelativelyhighminimumreservesareatadisad­
vantage.—theadditionalcentralbankdutiesinmanycountries
inconnectionwithrefinancingandthesettlement
ofpaymenttransactions ;theseadditionalduties
maybeseenastosomeextentaquidproquofor
theminimumreserverequirements .
3.2.Minimumreservespolicyhasbeencalledupon
muchlessinrecentyearsintheCommunity .Inparticu­
lar,minimumreservespolicyhasnolongerbeenused
toinfluencebankliquidityinspecificinstances,i.e.
rapidlyandfrequently,bychangesintheminimum
reservesratio.2.6.Varyingminimumreservesmeannotonlya
costdisadvantageforthosebanks,thebulkofwhose
businessissubjecttohighminimumreserverequire­
ments.Theupshotisa'delocation',aswitchofassets
totheEuro-moneymarketwithariskwhichisdifficult
tocalculate:namelythatintheeventofaliquidity
squeezetheparticipatingEuro-bankswillhaverecourse
torefinancingby'their'centralbank.Itshouldbenoted
thatinthefaceofthestormydevelopments onthe
Euro-moneymarketstherewasaUSinitiativeatthe
beginningofthe1980sforaninternationally agreed
minimumreservesrequirement,butthiswasnotfol­
lowedup.3.2.1.Hithertorelativelygreaterimportancehas
beenattachedtominimumreservespolicyinGermany
(seeMonthlyReportoftheDeutscheBundesbank3/
1990,p.22ff).TheDeutscheBundesbankseesminimum
reserves—evenwheretheratiosdonotchangeover
manyyears—asabufferandacontinuousbrakeagainst
moneycreationbythebanks.Itisthestatedobjective
oftheminimumreserverequirementsofboththeBun­
desbankandtheNederlandsche Banktomakethe
banksdependentonthecentralbankintermsofvolume
andpredictability ,i.e.onavirtuallyconstantdemand
forcentralbankmoney.InGermany'scasetheseargu­
mentscertainlycannotbebrushedasideinviewofthe
relativeimportanceoftheDMmoneysupply.3.Assessmentofminimumreserveandopen-market
policy
3.1.Intheinterestsofamonetarypolicywhichdoes
notaffectcompetition ,undernormalcircumstancesany
remainingminimumreservesshouldbereducedtoa
uniformlylowlevel,suchasresultsfromthe'working
balances',i.e.thebalanceswhichthebankswouldin
anycasekeepwiththeircentralbank.Atthesametime
thebasesofassessmentforminimumreservesmust
bealigned(seepoint2.3).Bearinginmindalsothe
competitionfromthefinancialcentresofmajorthird
countriessuchastheUSA,JapanandCanada,Com­
munitybanksshouldnotbeencumberedwithrelatively
higherminimumreserves.
Thereare,however,variousreasonsfornotcompletely
abolishingtheinstrumentofminimumreserves:3.2.2.Itshouldbenoted,however,thatinFebruary
1993theDeutscheBundesbankreduceditsrelatively
highminimumreserverequirementbyaboutDM
32000millionfrom,lastly,DM80000million.This
broughttheaverageburdenonGermanbanksdown
fromabout6to3,5%ofdeposits.Thisreduction
benefitedaboveallthesavingsbanksandcreditcooper­
ativeswhichaccountedforabout69%ofthe32000
reduction.TheexpressreasongivenbytheDeutsche
Bundesbankforthisreductionwasthatitwishedto
strengthentheinternationalcompetitiveness oftheGer­
manbanks.Insteadofcontinuingunchangedwithhigh,
non-interest-bearing minimumreserves,theBundes­
bankofferedthebanks,aswellasnon-banksand
privateindividuals,25000millionofinterest-bearing
newliquiditypapersinthreetrancheswithalifeof3,
6and9months,thusavailingitselfforthefirsttimeof
thenewArticle49oftheBundesbank Law.Butcom­
paredwiththetotalminimumreservesofallAmerican
banksintheUSFederalReserveSystem(about20000
millionUS$),theapprox.DM48000millionminimum
reservesoftheGermanbanksarestillconsiderable .—theoptionenshrinedinArticle19(1)oftheMaas­
trichtProtocolontheStatuteoftheEuropeanSys­
temofCentralBanksandoftheEuropeanCentral
Bank,namelyfortheECBtorequiretheholdingof
minimumreserves,
—thecontinuingdifferencesinopen-marketpolicyin
individualMemberStatesandthelinksbetween
thevariousmonetarypolicyinstrumentsasregards
theirimpactonthemoneysupplyandinterestrates,
—theparticularcircumstancesofindividualMember
States'monetarypolicy,e.g.thecaseoftheDMas
an'anchorcurrency'whichissubjecttospecial
pressures,3.2.3.The'lenderoflastresort'functionofthecen­
tralbanksalsoarguesforaretentionofcompulsory
minimumreserves,butatalowerlevel.Minimum
reservescanhaveawelcomecompensatory function
wheretheyareusedtemporarilyas'workingbalances'

10.5.93 OfficialJournaloftheEuropeanCommunities NoC129/15
3.4.Ageneralreductionofminimumreserveratios
toalowlevelmustbeaccompaniedasspeedilyas
possiblebyanalignmentofthewaytheyarecalculated.
Theminimumreserveratiosforthevarioustypesof
depositsshouldalsobeasuniformaspossibleand
possiblyincludebanks'certificatesofdeposit,especially
asthesecertificatesareapreferredinvestmentofmoney
marketfunds.tobridgeoverliquiditybottlenecks.Thiscanbeseen
whenstockexchangepricescollapseandthebanksare
suddenlyfacedwithfairlysubstantialliquiditybottle­
necks.Iftheminimumreservesarenotavailableorare
solowthattheycoveronlytheminimumbalance
requiredforpaymenttransactions,thebankswill
immediatelyneedgreaterliquidityassistancefromthe
centralbank.Interestrateswillbecommensurate with
theassistancerendered.
3.5.Thereductionofminimumreserverequirements
shouldalsoincludetheanalogousobligationwhichstill
existsinsomeMemberStatesforbankstoinvestin
centralbankcertificatesofdepositandingovernment
paper.Fromthebeginningofthesecondstageofmonet­
aryunion,i.e.from1January1994,theCommission
isinanycasetomonitorthedevelopmentofgovern­
mentdebt[Article104c(2)oftheMaastrichtTreaty],
withparticularreferencetoexcessivebudgetdeficits.
Thisincludescentralbankoverdraftfacilitiesinfavour
ofpublicauthoritieswhichwillbeprohibitedasfrom
thatdatepursuanttoArticle104(1)inconjunctionwith
Article109e(3).3.2.4.Thenon-monetary policy-basedminimum
reservesrequirementoftheBankofEnglandisanother
matter.Infact,theminimumreservesobligationofthe
Britishbanks(downto0,35%)maybeseenasalevy
forthesupervisorycostsoftheBankofEngland.Corre­
spondingleviesarealsoraisedforthispurposefrom
banksinothercountrieswheretherearespecialauthori­
tiesforbanksupervision .Suchleviesdonotseemto
influencecompetitionbetweenbanksintheinternal
market.Thesameappliestothepartial'deduction'of
thecostsofholdingminimumreservesfromcertain
paymentsservicesofthecentralbanks.Furthermore ,
theexampleoftheBankofEnglandshowsthatunder
presentconditionsmonetarypolicycanmakedowith­
outaminimumreserverequirement .3.5.1.InpreparationforArticle104theGreekcen­
tralbankhasalreadyreducedtherequirementforbanks
toinvestinTreasurybillsfroma'minimumreserve'of
40%inDecember1990to15%inOctober1992.
3.3.IfthemonetarypolicyofoneormoreMember
Statescontinuestoemployhighminimumreserve
requirements ,suchreservesinexcessofthe1or2%
justifiableasa'workingbalance'shouldbearinterest
atmarketrates.3.5.2.InSpainthecentralbankhasannounceda
systematicabolitionoftheobligationstoinvestincer­
tificatesofdepositandTreasurybills:these'minimum
reserves'incertificatesofdepositaretobereduced
graduallyto12%in1993,6%in1997andabout2%
in1999,the'minimumreserves'inTreasurybillsfrom
3,8%in1992to0%attheendof1996.
3.3.1.Thebanksofthecountriesconcernedwould
notbeatadisadvantage—includingincompetition
withbanksinothercountries—ifthatportionofthe
minimumreservesinexcessofthe1to2%boreinterest.
Thecentralbankscould,forinstance,considerpaying
interestatthediscountrateonallcompulsoryminimum
reservesinexcessof1or2%.3.5.3.Anevenmorerapidgeneraldismantlement of
theseminimumreserve-likeobligatoryinvestmentsfor
bankswouldhelptomakethecentralbanks'monetary
policymoreneutralfromthepointofviewofcompe­
tition.
3.5.4.Article19(1)oftheMaastrichtProtocolon
theStatuteoftheEuropeanSystemofCentralBanks
stipulatesthatminimumreserverequirementsmaybe
imposed'inpursuanceofmonetarypolicyobjectives';
inotherwords,minimumreservesmaynotbeusedby
thecentralbankstofinancepublicbudgetdeficitsor
asasourceofrevenueforthecentralbankitself.3.3.2.Payinginterestonminimumreservesis,ina
way,inherentlycontradictorybecause,fromthepoint
ofviewofthebanks,theminimumreserveswouldthen
belikeamoneymarketinvestment .However,this
'investment'wouldlacktheelementsoffreechoice
andinstantaccess.Ontheotherhand,compulsory
minimumreservescanalsobeaninducementtomoney
markettransactionsifthebankscanobtainthefunds
requiredtocomplywiththeirobligationstemporarily
andpartiallyonthemoneymarket.Compliancewith
minimumreserverequirements maytothisextent
involveactualcostsandnotjusttheoreticallossof
revenue .3.6.Withuniformlylowcompulsoryminimum
reservesthismonetarypolicyinstrumentwouldbe
readyforuseifrequiredbytheESCB,withoutinfluen­
cingcompetitionbetweenthebanks.Therewouldbe

NoC129/16 OfficialJournaloftheEuropeanCommunities 10.5.93
littlepointintotallyabolishingcompulsoryminimum
reservesafewyearsbeforemonetaryunioniftheywere
reinstatedbytheESCBwhensetupin1997or1999.
Thebasisforminimumreservesandtheirratiosisto
bedecidedinaccordancewithArticle19(2)andArticle
42oftheECBStatute.wouldseempossibleinaEuropeanSystemofCentral
Banksinwhichthenationalcentralbankscouldplaya
roleinopen-marketpolicy[Article18(1)oftheStatute].
UnderthemonetarypolicyguidelinesfortheCom­
munitywhichtheGoverningCounciloftheECBisto
adopt[Article12(1)ofitsStatute],thenationalcentral
bankswouldhaveacertainlatitudeastoopen-market
policyintheirownparticulararea,especiallyinthe
selectionoftheappropriate'domestic'securities.The
ECBcouldthenconcentrateonopen-markettrans­
actionsonthemajormarketsofthemostimportant
Communityfinancialcentres.However,inviewofits
scaleinaEuropeanmonetaryunion,theremustbea
certaincentralizingtendencyinopen-marketpolicy.3.6.1.Moreover,analignmentofminimumreserve
requirementsatalowlevelshouldnothaveanyconse­
quencesforMemberStateswhosecentalbanksdonot
haveminimumreservesasamonetarypolicyinstrument
(suchasLuxembourgandDenmark).Thesecountries
shouldbefreetointroduceaminimumreservespolicy
ifsuchisprovidedforaspartofthecreationofa
EuropeanSystemofCentralBanks. 3.7.2.Ontheotherhand,minimumreservespolicy,
becauseitnecessarilytiesallbanksdirectlytotheir
particularnationalbank,wouldunderlinethedesired
federativenatureoftheESCB.Theholdingofminimum
reservesalsomakesforarapidandreliableevaluation
oftheliquiditytrendandrequirementofeachMember
StateoftheESCB.Thiscanmakeiteasierformonetary
policytocontrolthemoneysupply,whichwouldmake
forgreatermonetaryandbankingstability.3.6.2.Keepingopentheminimumreservesoption
shouldalsobeseenagainstthebackgroundoflib­
eralizedfinancialmarketswhicharestillwillingto
innovateandforwhichtheminimumreservesinstru­
mentshouldalsobekeptinworkingorder.The
exchangerateadjustmentsanddramaticchangesin
centralbankforeignexchangereservesinSeptember
andOctober1992alsoshowedthatintheinternal
marketminimumreservescanmakeawelcomecontri­
butiontocontrollingthemoneysupplyinthewake
ofmassiveinflowsoroutflowsofforeignexchange.
Furthermore ,thelackofexperiencewiththeplanned
economicandmonetaryunion—commonmonetary
policywithcoordinatednationaleconomicpolicy—
argueforamonetarypolicyunderpinnedbyminimum
reserverequirements .4.Conclusions
4.1.TheEconomicandSocialCommitteeconsiders
thatthebasisforminimumreservesshouldbealigned
andtheminimumreserveratiosreducedto1to2%of
deposits,inallMemberStates;thisshouldbedoneas
soonaspossiblewithoutwaitingforacommonmonet­
arypolicyinthethirdstageofmonetaryunion.The
reasonsforanalignmentofminimumreservessystems
andforareductionintheminimumreserveratiostoa
uniformlylowlevelof1to2%aresetoutinpoints
4.2and4.3.3.7.Ontheotherhanditisunderstandable thatthe
centralbankshaverecentlyreliedmoreheavilythanin
thepastonopenmarketoperationsasamonetary
policyinstrument .Anopen-marketpolicyoffersahill
rangeofoptionsfromexpandingliquiditytopartially
reducingit,dependingonthevolumeofmoneyrequired
bythebanks.InmostMemberStatesopen-market
policyalreadyavailsitselfofvariousoptions,insome
casessimultaneously ,i.e.thesaleandrepurchaseof
centralbankcertificates,Treasurybillsandother
securities.Anincreasinglyimportantroleisbeing
playedbytheso-called'fixed-raterepos',wherethe
centralbankswithdrawfromthemarketatafixed
interestratethesecuritiesofferedtothembytender.4.2.Differentnationalminimumreservebasesaffect
competitionbetweenMemberStatebanks.Themini­
mumreservepolicypursuedinmostMemberStates
alsoaffectscompetitionbetweenCommunitybanks
andthebanksofmajornon-ECcountries,suchas
Japan,theUSAandSwitzerland.
3.7.1.Open-marketoperationsarealsoseenasa
formofmonetarypolicyconsistentwithamarketecon­
omy,aftertheliftingofthelastquantitativecredit
restrictionsattheendofthe1980s(e.g.in1986inItaly).
Anevenmoreintensiveuseofopen-marketpolicy4.3.Undernormalconditionshighminimum
reserves—iftheyaresubstantiallyinexcessofthework­
ingbalancesatthecentralbank—raisethecostofthe
liabilitiessideofthebankingbusiness,restricttheir

10.5.93 OfficialJournaloftheEuropeanCommunities NoC129/17
requirementsshouldbefreetointroducethemifthey
areprovidedforintheESCB.
4.6.Theminimumreserve-likecompulsoryinvest­
mentsincentralbankpaperandTreasurybillswhich
stillpersistinsomeMemberStatesshouldbedis­
mantledasquicklyaspossible.Suchcompulsoryinvest­
mentsserveinpracticetofinancepublicbudgetdeficits
throughthecentralbankandwillnotbepermitted
from1994.
4.6.1.Arapidgeneralabolitionofsuchcompulsory
investmentswouldmeanthatcentralbankmonetary
policyhadlessimpactonthecompetitivepositionof
thebanks.
4.6.2.Withregardtothepost-1994banonthefinan­
cingofbudgetdeficitsbythecentralbanks,consider­
ationshouldbegiventoaschedulewhichstretchesin
partuntiltheendofthe1990sandprovidesforaphased
dismantlement ofcompulsorybankinvestmentsin
securities.Iftheannualpercentageincreaseinthe
depositsformingthebasisforthecompulsoryinvest­
mentweregreaterthanthepercentagedecreaseinthe
ratios,thetotalamountwouldnotdecreasebutcould
evenincrease.lendingtothedisadvantageofbusinesscustomersand
privatehouseholdsandworkagainstbettertermsfor
theircustomers .
4.4.Tfoneormorecentralbanksopttoretainhigher
minimumreserveratios,interestshouldbepayableat
thediscountrateonthatportionoftheminimum
reservesinexcessofthebanks'workingbalancesof
1or2%withthecentralbank,soastoavoidthe
disadvantagesmentionedinpoints4.2and4.3.
4.5.Asamonetarypolicyinstrument,minimum
reservescanbealastresort,especiallyduringthecom­
pletionofeconomicandmonetaryunionandthereafter
forthecommonmonetarypolicyoftheESCBagainst
abackgroundofconvergentnationaleconomicpolicies.
Towardoffinflationarytendencies,minimumreserve
requirementscanevenbeawelcome—fromthepoint
ofviewofmonetarystability—monetarypolicyinstru­
mentwhichinfluencesbankliquidityinacountryrap­
idlyandevenly.Completeabolitionofminimum
reservesasamonetarypolicyinstrumentwouldnot
thereforeappeardesirable.However,countrieswhich
donotcurrentlyhaveanykindofminimumreserve
DoneatBrussels,24March1993.
TheChairman
oftheEconomicandSocialCommittee
SusanneTIEMANN