Determinants of Net Central Bank Reserves in the Euro Area: An Empirical Analysis

ABSTRACT Using confidential monthly data of 131 euro area banks between January 2020 and February 2024, this article analyses bank characteristics that can explain the dynamics of net central bank reserves after the years of low interest rates. Net central bank reserves, as a share of total assets, have increased continuously since 2020, despite the move from QE to QT. We find evidence of a substitution effect between net central bank reserves, and loans and government bonds, which is an automatic adjustment of the main items in the asset side of the balance sheet of banks. Large banks and banks that did not take part in special refinancing operations seem to have increased the most their net central bank reserves. Both findings can be related to a stigma effect of using central bank facilities. We also document a negative relation between the duration gap and changes in the share of net central bank reserves. Finally, drivers of changes in net central bank reserves vary strongly over time (QE and QT periods) and in the cross‐section of banks (banks domiciled in the countries most affected by the global financial crisis or elsewhere).