Isabel Schnabel, ECB Executive Board Member, discusses the future of the Eurosystem balance sheet, operational framework, and reserve management strategies at the ECB Conference on Money Markets 2025.
Isabel Schnabel, Member of the Executive Board of the ECB, delivered a speech at the ECB Conference on Money Markets 2025, outlining the Eurosystem’s approach to balance sheet normalisation and future reserve supply.
Key points include the progress of quantitative normalisation, with strong bank liquidity and abundant excess reserves, and the use of fixed-rate full allotment in refinancing operations to ensure liquidity availability.
The speech emphasizes that the Eurosystem balance sheet reflects past shocks and recovery phases, noting a 45% reduction in holdings of monetary policy-related assets since 2022, with a smooth unwinding process.
The operational framework, published in March 2024, suggests that the balance sheet will become more responsive to banks’ liquidity demands, with reserves supplied elastically through refinancing operations, decoupling from interest rate control.
It discusses the sequence for future reserve provision: persistent take-up of standard refinancing operations, followed by structural operations including longer-term refinancing and a new structural securities portfolio, which will be launched once legacy portfolios run off sufficiently.
The speech highlights the importance of considering policy stance neutrality, policy space, and financial soundness when designing the new securities portfolio, favoring shorter-term securities to maintain flexibility and stability.
Overall, the framework aims to support effective monetary policy implementation, market functioning, and financial resilience, with adjustments expected as the balance sheet normalises further.
