In the eurozone, banks received approximately 130 billion euros in interest on their deposits with the ECB in 2023. Two economics professors from Hamburg, Bernd Lucke and Dirk Meyer, have called for the removal of what they consider “unproductive income” from credit institutions that park unneeded money with the central bank.
The European Central Bank (ECB) has pursued a very expansive monetary policy for several years with zero and negative interest rates and bond purchases worth trillions. The consequences are still being felt today. While commercial banks in the Eurozone were affected by negative interest rates for several years despite relief measures, they are currently benefiting from the high deposit rate.
However, according to Lucke and Meyer, at the end of 2023, banks in the Eurozone had parked around 3.5 trillion euros in the deposit facility of the euro system, leading to large interest payments on commercial banks’ deposits. This has resulted in losses for central banks like the German Bundesbank.
The economists propose taxing this unearned income profit-neutrally within the OECD to avoid competitive disadvantages for local banks. The tax would be based on the excess reserves held by banks as of December 31, 2022, and adjusted over time to match the interest payments made by the ECB.
On the other hand, Commerzbank’s chief economist, Jörg Krämer, argues that banks receive a variable interest rate in exchange for selling government bonds to the ECB. These interest rate swaps are common in financial markets, and taxing deposits might not align with the ECB’s monetary policy goals.
While Lucke and Meyer believe that banks should be taxed to eliminate unearned income
