By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Pierre Wunsch said Thursday that he was unconvinced by arguments for raising the ECB's minimum reserve requirement on banks, warning that using the measure to reduce central bank losses could turn it into a quasi-fiscal instrument.

The National Bank of Belgium governor said at the bank’s biennial international research conference in Brussels that discussions were under way about increasing the minimum required reserve ratio while continuing not to remunerate required reserves.

“There are now ‘ongoing discussions’ about applying a higher minimum required reserve ratio – the MRR ratio – while of course keeping required reserves unremunerated,” Wunsch said.

“Honestly, the reasoning here is not very clear, or convincing, to me,” he said.

Wunsch said using the reserve requirement primarily to reduce Eurosystem losses would blur the boundary between monetary and fiscal policy.

“If the goal is to limit our losses, the MRR ratio would become a quasi-fiscal instrument,” he said.

“And fiscal policy is typically not a role allocated to the central bank,” Wunsch said.

He also warned that imposing a larger cost on banks through unremunerated reserves could have consequences for the effectiveness of future monetary policy operations.

Banks might be less willing to participate in a later asset purchase program if they believed participation could subsequently expose them to additional costs, weakening the usefulness of such an instrument, Wunsch said.