Excess cash in euro-area banking system falls to €2T

euro-area banking system: The euro-area banking system comprises banks operating in countries that use the euro and is supported by liquidity operations conducted through the Eurosystem. It is relevant because excess liquidity held by these banks has continued to decline as the European Central Bank reduces its securities holdings and banks adjust their reserve positions. Liquidity trend: ECB data show that excess liquidity has fallen steadily from its late-2022 peak as the APP and PEPP portfolios are allowed to run down. Monetary policy: The ECB describes excess liquidity as bank reserves above minimum requirements, together with net use of its deposit facility; the decline reflects a gradual normalization of the Eurosystem balance sheet. Financial stability: Despite the reduction in central-bank liquidity, ECB analysis indicates that euro-area bank liquidity ratios remain high, while banks are shifting part of their holdings from excess reserves toward sovereign bonds.