The Irish Bankers' Federation has said it is disappointed that the European Central Bank (ECB) has decided to set minimum reserve requirements for commercial banks in the new single currency zone.
But the move is unlikely to have a major impact on the industry in the Republic as banks, building societies and credit institutions already have to deposit a certain percentage of their deposits with the Central Bank.
At present, the banks have to set aside 3.0 per cent of their deposit liabilities with the Central Bank and are paid interest at just 80 per cent of the market rate.
Under Economic and Monetary Union (EMU), banks will have to set aside between 1.5 and 2.5 per cent of certain deposits but will receive interest on the money at market rates. However, a wider definition will be used to calculate an institution's relevant resources.
"On balance, the banks should gain slightly. It won't be penal for them as it is not radically different to the current system," one industry source said.
He noted that the Central Bank had gradually reduced the reserve requirement from 10 per cent to 3 per cent over the last 10 years in anticipation of this. However, the banking industry has complained that it will damage competitiveness against banks in countries outside the euro zone. Britain, for example, imposes no reserve requirement on commercial banks.
The Irish Bankers' Federation (IBF) said it had lobbied, along with banks in other member states, against the introduction of reserve requirements.
"We are disappointed that the ECB has gone ahead to impose them. This is a new regime and we felt there was an opportunity to have the minimum reserve requirement taken out as a form of implementing monetary policy," an IBF spokesman said.
The federation said that the decision to remunerate the banks at market rates for the deposits was a comfort. Central banks believe that having a minimum reserve requirement for commercial banks gives them better leverage over short-term interbank rates as it forces the banks to borrow from the central bank.
