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Table 1: Balance of payments of the euro area (Euro 12) ( 1 )

(EUR billions)

2000 2001
February January – February February January – February
Credit Debit Net Credit Debit Net Credit Debit Net Credit Debit Net
Source: ECB.
( 1 ) As from January 2001 the data refer to the Euro 12, i.e. they include Greece. Data for 2000 have been re-calculated to take into account the new composition of the euro area and are comparable with Euro 12 figures.
( 2 ) Financial account: inflows (+); outflows (-). Reserve assets: increase (-); decrease (+).
( 3 ) Direct investment: assets refer to direct investment abroad and liabilities to direct investment in the euro area.
CURRENT ACCOUNT 116.2 117.3 −1.1 228.1 239.7 −11.5 133.0 130.9 2.1 271.2 277.7 −6.5
Goods 71.9 69.7 2.2 135.6 135.8 −0.2 81.5 78.3 3.3 161.0 159.6 1.4
Services 19.3 21.2 −1.8 38.2 41.9 −3.6 20.9 22.0 −1.1 42.1 45.7 −3.6
Income 17.4 18.4 −1.0 33.7 39.9 −6.2 23.0 22.5 0.5 45.5 51.7 −6.2
Current transfers 7.5 7.9 −0.4 20.6 22.1 −1.5 7.5 8.1 −0.6 22.5 20.7 1.8
CAPITAL ACCOUNT 1.3 0.4 0.9 3.4 0.9 2.4 2.0 0.4 1.6 3.9 0.9 3.0
Assets Liabilities Balance Assets Liabilities Balance Assets Liabilities Balance Assets Liabilities Balance
FINANCIAL ACCOUNT ( 2 ) 2.1 −2.6
DIRECT INVESTMENT ( 3 ) −20.1 166.1 145.9 −27.4 173.8 146.4 −17.1 16.4 −0.8 −30.1 24.9 −5.2
Equity capital and reinvested earnings −13.6 159.1 145.4 −20.4 166.5 146.1 −7.7 13.9 6.2 −16.7 20.0 3.4
Other capital, mostly intercompany loans −6.5 7.0 0.5 −7.1 7.4 0.3 −9.5 2.5 −7.0 −13.4 4.8 −8.6
PORTFOLIO INVESTMENT −85.7 −66.0 −151.7 −108.1 −47.8 −155.9 −29.3 30.2 0.9 −63.6 19.1 −44.5
Equity −68.6 −92.7 −161.3 −90.4 −86.0 −176.3 −11.0 13.5 2.5 −28.8 11.4 −17.4
Debt instruments −17.1 26.7 9.6 −17.7 38.1 20.4 −18.3 16.8 −1.6 −34.9 7.7 −27.2
Bonds and notes −14.3 12.7 −1.7 −22.4 25.1 2.7 −16.7 17.3 0.5 −23.3 7.6 −15.6
Money market instruments −2.7 14.0 11.3 4.6 13.0 17.7 −1.6 −0.5 −2.1 −11.6 0.0 −11.5
FINANCIAL DERIVATIVES (NET) 1.9 1.1 −1.0 −6.0
OTHER INVESTMENT −30.8 32.3 1.4 −50.9 80.9 30.0 −6.9 3.7 −3.2 −57.2 102.0 44.7
Eurosystem 0.0 −1.7 −1.7 0.0 −1.4 −1.4 0.4 −2.1 −1.8 1.0 −0.7 0.2
General government −2.7 −0.5 −3.2 −5.6 −1.5 −7.1 0.3 −4.2 −3.9 4.0 −10.3 −6.3
MFIs (excluding the Eurosystem) −17.7 25.8 8.1 −19.0 70.2 51.2 −0.8 9.8 8.9 −54.5 112.9 58.4
Long-term −4.9 8.5 3.5 −8.9 15.0 6.1 −3.5 4.7 1.1 −7.7 3.6 −4.1
Short-term −12.8 17.4 4.6 −10.1 55.2 45.1 2.7 5.1 7.8 −46.8 109.3 62.5
Other sectors −10.4 8.6 −1.8 −26.3 13.6 −12.7 −6.7 0.2 −6.5 −7.7 0.1 −7.6
RESERVE ASSETS 6.1 8.5
Errors and omissions −5.7 6.1
set that the ECB holds on its balance sheet.

This does not mean, however, that we will return to the past, neither regarding the size nor the composition of our balance sheet.

In 2006 currency in circulation was in the order of €630 billion. Today, it is around €1.6 trillion, as the demand for banknotes has grown steadily over time.

Moreover, for reasons of precaution, heightened investor scrutiny and regulatory as well as technological changes, banks today may want to hold a significant buffer of excess reserves, depending on their liquidity preferences.

According to scenario analysis by ECB staff, demand for excess reserves could range from €600 billion (if banks held only 10% of total HQLA in reserves and allowed the aggregate LCR to drop from 158% today to 130%) all the way up to €2.2 trillion if reserves were to account for 30% of the HQLA and the LCR was allowed to decline only marginally from today’s level (Slide 9).

Even if demand for reserves was ultimately at the lower end of this range, it would not be prudent for a central bank to rely exclusively on short-term refinancing operations.

Concentrating liquidity provision in just one instrument would give rise to operational risks and encumber a significant amount of collateral.

For these reasons, we clarified in our operational framework review that, in the future, we will also offer structural operations, including new longer-term refinancing operations and asset purchases under a new structural securities portfolio.

These operations are expected to make a substantial contribution to covering the banking sector’s structural liquidity needs arising from autonomous factors and minimum reserve requirements.[18]

Importantly, they will provide liquidity for monetary policy implementation rather than steering the monetary policy stance.

While the date for launching these operations is uncertain and will depend on how fast excess liquidity declines and how banks react to this decline, our framework suggests the following sequence.

Persistent take-up of standard refinancing operations to precede structural operations

First, before we launch structural operations, we need to see a persistent and broad-based rise in the take-up of our standard refinancing operations (Slide 10, blue area). These act as our marginal instrument to provide liquidity. The time, extent and pace of the take-up will provide us with valuable insights into banks’ demand for reserves.

As QN proceeds, there will come a point when the level of outstanding reserves is no longer sufficient to meet the aggregate demand from the banking sector, meaning that it will not be possible to satisfy liquidity demands via the redistribution of reserves.

At that point, overnight and term repo rates could rise more meaningfully, and take-up of our operations will increase. However, this would not be a signal of looming stress but rather a sign of a functioning system that endogenously steers banks towards our refinancing operations.

Terms of structural refinancing operations subject to trade-offs

Second, once the recourse to our standard refinancing operations reaches a level where banks constantly roll over a significant amount of short-term borrowing to meet their liquidity needs, we should consider offering structural operations.

Given the still large legacy bond holdings from earlier monetary policy operations, this naturally starts with structural longer-term refinancing operations.

One option would be to shift a fraction of the recurring demand from our standard operations into structural longer-term refinancing operations (LTROs) at regular intervals (Slide 10, green area).

Under this approach, the Eurosystem could, for instance, allot a fixed quantity of reserves in a variable rate tender, where the quantity to be allotted could be revised over time, just like we used to do before the global financial crisis.

In choosing the appropriate length of the operation, central banks face a trade-off.[19]

On the one hand, the longer the tenor, the lower the operational costs of rollover and the higher the regulatory benefits for banks. Any central bank borrowing with a residual maturity above six months counts not only towards the LCR but also towards the net stable funding ratio.

On the other hand, the longer the tenor, the less agile central banks are in adjusting their balance sheet to unanticipated shocks and the higher the risk of crowding out market-based funding solutions, which may conflict with regulatory objectives by making banks overly dependent on the central bank to meet regulatory requirements.

In the past, the ECB has varied the maturity of the loans it provided to banks. Only in exceptional circumstances, such as in response to the sovereign debt crisis or the pandemic, did the term of these operations exceed one year.

In any case, the structural LTROs have to be designed in a way that preserves the crucial feature of our operational framework, which is that the marginal unit of liquidity is provided via our standard refinancing operations.

Structural and national securities portfolios contribute to meeting liquidity demand

Finally, sometime after the launch of the structural LTROs, we will start building up a new structural securities portfolio (Slide 10, purple area).

The size of this portfolio will depend on the decision by the Governing Council on the relative contribution that securities holdings should make to covering banks’ structural liquidity needs arising from autonomous factors and minimum reserve requirements.

The timing of the launch of this portfolio is therefore closely linked to the run-off in our legacy monetary policy bond portfolios. In addition, national central banks also have non-monetary policy securities holdings, including euro-denominated asset portfolios (Slide 10, red area).

These non-monetary policy holdings fall under the agreement on net financial assets, which limits the amount of liquidity national central banks can create via non-monetary policy activities, referred to as the net financial asset position.[20]

During QE, for example, this position declined, thereby providing monetary policy space (Slide 11, left-hand side). More recently, it started to grow again, also reflecting efforts to rebuild financial buffers.

So, as was the case before the global financial crisis, these national portfolios will make a contribution to covering the euro area banking system’s structural liquidity needs in the future, together with the new structural operations.

As a result, purchases under the new portfolio will only start once the liquidity injected through our legacy monetary policy bond portfolios and the net financial asset position falls short of covering the share of reserves the Governing Council decided to provide through securities holdings.

Passive balance sheet run-off implies that this point is still far away (Slide 11, right-hand side).

How to choose the maturity structure of the structural securities portfolio

The final question that I would like to address this morning is the type of assets the ECB may choose to buy as part of its new structural securities portfolio.

In taking this decision, we must weigh up a range of factors.

For example, in our operational framework review in 2024 we announced that we will aim to incorporate climate change-related considerations into the structural monetary policy operations.[21]

While these issues are relevant, I will focus today on the considerations related to the maturity structure of a new portfolio. Three principles are relevant in this context.

One is policy stance neutrality. The goal of the operational framework is to implement the desired monetary policy stance and not interfere with it.

Outright purchases of long-term bonds transfer interest rate risk from the private sector to the public sector. This eases financing conditions and hence affects the monetary policy stance.

For example, before the 2008 global financial crisis, the Federal Reserve’s Treasury holdings were tilted towards shorter-term securities, with a weighted average maturity of three to four years.

Overweighing purchases of shorter-term securities minimises duration extraction from asset purchases and is hence more stance neutral.

A second factor relates to maintaining policy space for future asset purchases.[22]

ECB staff estimate that there is still a non-negligible risk of again hitting the effective lower bound in the future.[23] Also, in a more fragmented and shock-prone world, risks to monetary policy transmission may become a concern again.

As a result, also in the future, there could be episodes in which the Eurosystem may be forced to purchase significant volumes of longer-dated bonds in its pursuit of maintaining price stability and monetary policy transmission.[24]

In view of this, holding shorter-dated assets in the structural securities portfolio could preserve valuable policy space.

A third factor relates to the central bank’s financial soundness.

While central banks are not profit-maximising institutions, preserving financial soundness helps maintain central bank credibility and independence.[25]

One important risk to financial soundness stems from interest rate risk arising from central banks being exposed to a duration mismatch, which occurs when they hold significant amounts of long-term assets with fixed interest rates.

While the exposure to such interest rate risk may at times be necessary to preserve price stability, such as during the period of QE, it should remain limited in normal times.

For parts of our balance sheet, the design of our operational framework embeds a deliberate alignment of the duration of assets and liabilities. By providing reserves on demand through refinancing operations, the Eurosystem matches its floating rate liabilities – reserves remunerated at the deposit facility rate – with floating rate assets, namely variable rate repos.

By contrast, a framework that supplies reserves largely through fixed rate bonds tends to create more interest rate risk. As a result, when policy rates rise, interest expenses can exceed central bank income. This is what we have experienced in recent years.

Taken together, these three factors speak, in my opinion, in favour of tilting the structural securities portfolio, to the extent feasible, towards shorter maturities.

Conclusion

To conclude, let me leave you with three central lessons that define the logic of our operational framework and the impact it can be expected to have on our balance sheet.

First, in a demand-driven framework, there is no direct connection between the run-down of our legacy monetary policy bond portfolios and interest rate control.

A narrow policy rate corridor and fixed rate full allotment of our standard refinancing operations can limit interest rate volatility and ensure that reserves remain sufficiently ample. We therefore encourage banks to use our operations if and when they need liquidity.

Second, there is a sequence embedded in the operational framework for how to supply reserves in the future.

Our standard refinancing operations are the marginal source of liquidity for banks. Once the Eurosystem balance sheet begins to grow durably again, we will start launching structural operations, starting with longer-term refinancing operations and followed later by the build-up of a structural securities portfolio.

The latter will be launched once the legacy monetary policy portfolios have run off sufficiently, also considering non-monetary policy securities holdings.

Finally, policy stance neutrality, the need to maintain policy space and considerations related to financial soundness are important factors that will guide the maturity of assets the ECB will buy under a new structural securities portfolio. These factors suggest tilting the structure towards shorter-dated assets.

Thank you.

  1. The gradual run-down of our balance sheet began in March 2023 when we started to only partially reinvest assets from our asset purchase programme. Full run-down did not start until January 2025. Balance sheet normalisation had started earlier with the early repayment and maturing of targeted longer-term refinancing operations in 2022.

  2. The introduction of the digital euro will create a third category of base money.

  3. This is broadly true for reserve currency central banks or economies with floating exchange rates.

  4. This is consistent with the set of ECB policy rates being our primary monetary policy instrument. See ECB (2025), The ECB’s monetary policy strategy statement (2025).

  5. ECB (2024), “Changes to the operational framework for implementing monetary policy”, statement by the Governing Council,13 March; Schnabel, I. (2024), “The Eurosystem’s operational framework”, speech at the Money Market Contact Group meeting, Frankfurt am Main, 14 March.

  6. Schnabel, I. (2023), “Back to normal? Balance sheet size and interest rate control”, speech at an event organised by Columbia University and SGH Macro Advisors, New York, 27 March; Logan, L. (2025), “Ample liquidity for a safe and efficient banking system”, remarks at the 'The Evolving Landscape of Bank Funding' conference at the Federal Reserve Bank of Dallas, October 31.

  7. The standard refinancing operations are the weekly main refinancing operation and the three-month longer-term refinancing operations, allotted once a month.

  8. Hartung, B. et al. (2025), “The first year of the Eurosystem’s new operational framework”, The ECB Blog, ECB, 25 April; Bank of England (2023), “What do we know about the demand for Bank of England reserves?”, 22 February.

  9. The counterfactual LCR simulation assumes that banks’ government bond holdings remain fixed at their Q3 2022 level, while all other LCR components follow their actually reported values.

  10. A broadly stable LCR also reflected the fact that the LCR denominator – the expected net liquidity outflows in a stress scenario – has remained broadly stable over the past three years.

  11. Liquidity provided through asset purchases often tends to be concentrated among a few larger financial institutions located in a few countries. Between November 2011 and May 2023, about 40% of banks, in terms of total assets, held the entire excess liquidity from asset purchases.

  12. See also, Williams, J. (2025), “On the Optimal Supply of Reserves”, remarks at the New York Fed – Columbia SIPA Monetary Policy Implementation Workshop, Federal Reserve Bank of New York, New York City, May 22.

  13. Nor would concerns about market functioning be a reason to change the pace of run-down. For these contingencies, we have a range of instruments at our disposal.

  14. Friedman, M. (1996), “The Optimum Quantity of Money”, The Optimum Quantity of Money and Other Essays, Macmillan, London.

  15. An environment in which market participants become conditioned to operate with ample access to cheap funding fosters a liquidity dependence by banks that may diminish the system’s capacity to absorb shocks. See Acharya, V.V. et al. (2023), “Liquidity Dependence and the Waxing and Waning of Central Bank Balance Sheets”, NBER Working Paper, No 31050; Borio, C. (2023), “Getting up from the floor”, BIS Working Papers, No 1100.

  16. Schnabel, I. (2024), op.cit.

  17. Buch, C. and Schnabel, I. (2025), “Managing liquidity in a changing environment”, The ECB Blog, 18 March.

  18. ECB (2024), op.cit.

  19. The Bank of England, for example, offers liquidity for a six-month term, with the price depending on both the collateral pledged and overall demand.

  20. ECB (2024), “What is ANFA?”, 13 September.

  21. ECB (2024), op.cit.

  22. See also Edge, R. M. and Li, D. (2025), “Central bank preparedness for market-functioning asset purchases as a consideration for long-run balance sheet composition”, Finance and Economics Discussion Series (FEDS), Federal Reserve Board, Washington DC.

  23. Kamps, C. et al. (2025), “Report on monetary policy tools, strategy and communication”, Occasional Paper Series, No 372, ECB, 30 June.

  24. Today, for example, the weighted average maturity of assets bought under the pandemic emergency purchase programme is still slightly above seven years.

  25. Recently, an asset-liability management (ALM) approach has been proposed as a blueprint for central bank balance sheets. See Waller, C. (2025), “Demystifying the Federal Reserve's Balance Sheet”, speech at the Federal Reserve Bank of Dallas, Dallas, Texas, 10 July; Hammack, B.M. (2025), “The Federal Reserve’s Balance Sheet: Some Major League Questions”, speech at the Money Marketeers of New York University, Inc., New York, 23 April; De Vere, H., Ramaswamy, S. and Schulhofer-Wohl, S. (2025), “An Asset-Liability Management Approach to the Federal Reserve Balance Sheet”, Research Department Working Paper, No 2525, Federal Reserve Bank of Dallas.

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6 November 2025
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