Banks double the liquidity they request from the ECB this year

European banks have doubled the liquidity they request from the European Central Bank (ECB) this year, according to recent reports. This surge in demand follows years of reduced usage and comes as entities discuss competition for liquidity in the European market. The Frankfurt window, which previously lay dormant, is once again active.

In recent months, eurozone banks have shed their hesitance to request funds from the ECB and have ramped up their weekly liquidity requests. These requests have increased to €230 billion since April, when the ECB announced a rate hike that followed in June. This represents more than doubling the amount from the same period last year, when they garnered nearly €109 billion.

With this recent boost, liquidity requested under the ECB's weekly auction system now totals €460 billion this year, surpassing 2025 levels by nearly 45%.

The new liquidity, however, remains in circulation, as entities borrow funds for repayment the following week. Following the latest rate hike, banks have access to the weekly ECB bar at a cost of 2.4%, which is 15 basis points above the rate referenced by many monetary market operations. For years, the resource remained underutilized due to cheaper alternatives in the market and the significant excess liquidity present.

This led to concerns that requesting funds from the ECB could create a stigma or signal weak conditions, as the difference in rates previously reached 50 basis points. However, this perception has changed.

The ECB has significantly drained the excess liquidity from the market through disposing of a substantial portion of the debt portfolios acquired under stimulus programs and recovering long-term loans made during the pandemic. Sector calculations show that excess liquidity has fallen to €2.2 trillion, less than half of its peak.

While doubts remain about the level of excess liquidity that would trigger a fully normalized monetary policy, estimates suggest it lies between €1.8 and €1.4 trillion, indicating that levels are approaching a point where liquidity is no longer in surplus in the system. Banks acknowledged this situation to the ECB during a recent meeting to discuss monetary market conditions.

They reported detecting increasing competition for liquidity, with banks requesting more funds in all free financing operations this year compared to the same periods last year, indicating a structural increase in volume.