Paul De Grauwe, Yuemei Ji
The ECB subsidises commercial banks massively against inflation, which constitutes a more than €1 trillion transfer of money from taxpayers to private banks over the next ten years. This column argues the subsidies are exorbitant and proposes a two-tier system of non-interest-bearing minimum reserve requirements on part of bank reserves. This will reduce the excessive subsidies to banks while maintaining the current operating procedure used by the central bank. It will also alleviate the burden on taxpayers and avoid making the ECB’s operating procedure unsustainable.