In the euro zone, commercial banks received approximately 130 billion euros in interest on their deposits with the European Central Bank (ECB) in 2023. This income is considered unearned by two professors, Bernd Lucke and Dirk Meyer from Hamburg. However, a bank economist disagrees, stating that banks benefit from the variable interest rates provided by the ECB in exchange for selling government bonds to the ECB.
The ECB has implemented an expansive monetary policy for years, including zero and negative interest rates and large bond purchases, causing disruptions in the banking and financial markets. The consequences of these actions are still being felt today. The excess liquidity created through asset purchases has led commercial banks to park their funds with the ECB, earning interest at the deposit rate. This situation has resulted in losses for central banks such as the German Bundesbank and the ECB, despite commercial banks benefiting from high interest payments without financing investments or bearing risks.
Lucke and Meyer suggest taxing banks profit-neutrally to address this issue. They propose a tax on excess reserves held by banks as of December 31, 2022, to prevent evasive reactions from the banks. However, Jörg Krämer, the chief economist at Commerzbank, believes that banks benefit financially from the variable interest rates provided by the ECB in exchange for selling government bonds to the ECB. He sees this as a “fixed to variable swap.”
Lucke and Meyer argue that taxing deposits would not affect the ECB’s monetary policy as it would be based on a fixed assessment basis from 2022. They believe that this tax would remain effective until excess reserves from QE holdings are reduced. Despite concerns about its impact on financial stability, they emphasize that if necessary, governments can inject capital into troubled banks to make them co-owners rather than providing cash gifts without any ownership in return.
In conclusion, while some view this income as unearned due to its connection with negative interest rates and asset purchases implemented by central banks across Europe