An ECB occasional paper published on Monday puts a price on why the euro area’s unsecured interbank market never came back. Using stylised estimates for the second half of 2025, the authors estimate the marginal regulatory cost of unsecured interbank lending at about 35 basis points for lenders and about 15 basis points for borrowers, reflecting capital and stable funding requirements under the liquidity coverage ratio, net stable funding ratio and leverage ratio. Secured transactions such as repos backed by high-quality collateral cost typically well below 10 basis points.
The paper’s argument is that the gap is structural, not cyclical. Unsecured lending requires capital against counterparty credit risk and stable funding; collateral removes most of both. The authors conclude the unsecured interbank market is unlikely to return to pre-2008 levels even as the stock of reserves declines, and that repo markets are likely to remain the main channel for reserve redistribution as the ECB’s balance sheet normalises.
The stakes are operational. The ECB implements policy by steering short-term rates, and that control depends on reserves moving smoothly between banks. Interbank volumes underlying the old EONIA benchmark fell from 27 billion euros to 2 billion euros between 2015 and 2019 as excess liquidity crowded out trading, the paper notes. If the redistribution channel is repo, then access to repo markets, which differs across institutions, becomes a monetary policy variable in its own right as reserves get scarcer.