Euro area excess liquidity fell another €157bn to €2,201bn by late July
Victoria Shinder2 min readA box in the ECB's latest Economic Bulletin reviews liquidity conditions in the third and fourth reserve maintenance periods of 2026, from 6 May to 28 July. Its headline number is excess liquidity - the reserves banks hold beyond requirements plus their deposit facility use, net of marginal lending - which fell by €157 billion to €2,201 billion over the period. It peaked at €4,748 billion in November 2022 and has declined steadily since.
The driver is the run-off of the ECB's bond portfolios. Liquidity provided through monetary policy instruments fell by €147 billion to €3,485 billion, mainly because outright holdings under the asset purchase programme and the pandemic programme dropped by €150 billion to €3,458 billion as bonds matured without reinvestment. Banks' liquidity needs also rose, by €11 billion to €1,284 billion, as net autonomous factors increased and minimum reserve requirements edged up by €2 billion to €174 billion.
Refinancing operations remain a small part of the picture. Liquidity from credit operations rose by €3 billion to €27 billion, with main refinancing and three-month operations each slightly higher. Participation is limited because banks have ample liquidity and market funding, but the ECB notes that the number of banks testing their participation has kept growing in 2026, a sign that they are building operational readiness. During the period the Governing Council raised its three key rates by 25 basis points, taking the deposit facility to 2.25%. The euro short-term rate stayed 6.8 basis points below the deposit rate on average, while the RepoFunds Rate Euro moved to 1.6 basis points above it, from 0.7 in the previous period.
What it means
The ECB's system has been running on abundant reserves supplied by past asset purchases. As those bonds mature, banks will at some point need to borrow reserves from the ECB rather than simply hold them. The rise in banks testing access to its operations, and repo rates drifting above the deposit rate, are early indicators that the transition is being prepared for.
For the euro, the practical signal is in money market spreads. As long as €STR sits a few basis points under the deposit rate, reserves remain plentiful. A narrowing of that gap would be the sign that the balance sheet has shrunk far enough for liquidity to start mattering.