The Eurosystem’s operational framework for implementing monetary policy comprises the tools, instruments and procedures to be used by the national central banks, like the Bundesbank, in order to implement the ECB Governing Council’s monetary policy decisions. Alongside the standing facilities, these notably include open market operations. The weekly main refinancing operations (MROs) – one-week secured loans to euro area banks – have traditionally been a key Eurosystem instrument for steering interest rates and liquidity in the market and signalling the stance of monetary policy. 

With inflation too low and interest rates particularly low, the ECB Governing Council began, in 2014, to conduct supplementary, non-standard monetary policy measures in an effort to further ease the stance of monetary policy. Excess liquidity in the banking system increased significantly, particularly as a result of the asset purchase programme (APP) and pandemic emergency purchase programme (PEPP) as well as the targeted longer-term refinancing operations (TLTROs), thus expanding the Eurosystem’s balance sheet. 

By the time the last TLTRO matured, the Eurosystem’s total assets and excess liquidity had already declined considerably, though they remain at a highly elevated level. As the substantial holdings of monetary policy securities run off, the Eurosystem’s balance sheet will shrink over the next few years and excess liquidity will continue to fall. 

Anticipating these developments, the ECB Governing Council concluded the review of its operational framework for implementing monetary policy, agreeing in March 2024 that the monetary policy stance would continue to be steered through the deposit facility rate (DFR). It announced that, to this end, the spread between the rate on the MROs and the DFR would be reduced from 50 to 15 basis points as of 18 September 2024, with MROs continuing to be conducted through fixed rate tender procedures with full allotment. This would incentivise banks to bid in the refinancing operations. The decline in excess liquidity would strengthen this incentive. Over the medium to long term, the amount of excess liquidity would therefore be determined by bank demand. 

As a result of this, the MRO rate is likely to play a bigger role over the longer term compared with the DFR.

Furthermore, operations will be introduced going forward that will make a substantial contribution to covering the banking sector’s structural liquidity needs. These are expected to include structural longer-term refinancing operations and a structural portfolio of securities. The design of these structural operations has not yet been determined. From the Bundesbank’s perspective, suitably designed structural refinancing operations will be able to cover the bulk of the banking system’s structural liquidity needs in future. However, operations like these are unlikely to be introduced until a later date because the banking system looks set to have a structural liquidity surplus vis-à-vis the Eurosystem for some years to come. The Bundesbank expects structural refinancing operations to be introduced before a structural portfolio is built up.

The ECB Governing Council furthermore agreed on a set of principles for monetary policy implementation going forward, including effectiveness and efficiency. The principle of an open market economy is also highly important in this context.

Based on the experience gained in the interim period, the ECB Governing Council will review the key parameters of the operational framework in 2026. The Bundesbank will play an active role in the future design and development of the operational framework. It consults regularly with monetary policy counterparties and other market participants on the implications of using the monetary policy tools and instruments in order to maintain a clear understanding of the situation, even in a market environment that is in constant flux. The design and parameters of the operational framework can (and must, if necessary) be adapted to ensure that liquidity and money market rates are steered in line with the Eurosystem’s mandate.

One key building block in the implementation of the single monetary policy in the euro area is the operational framework for implementing monetary policy adopted by the ECB Governing Council. 1  This framework defines general rules governing the instruments and procedures to be used by the Eurosystem national central banks in order to implement the ECB Governing Council’s monetary policy decisions in a decentralised manner. It is distinct from the monetary policy strategy: the ECB Governing Council uses that as the basis for setting the monetary policy stance, 2 which is signalled, in particular, by the key ECB interest rates. The operational framework for implementing monetary policy provides the instruments needed to bring short-term interest rates in the market into line with the monetary policy stance.

Within the general framework, the ECB Governing Council defines the specific design of the regularly used monetary policy instruments. The operational framework for implementing Eurosystem monetary policy essentially comprises three categories of monetary policy tools: standing facilities (consisting of the marginal lending and deposit facilities), the minimum reserve system, and open market operations (which notably include the refinancing operations). The Bundesbank operates minimum reserve accounts, settles monetary policy refinancing operations and offers standing facilities, amongst other things, for monetary policy counterparties established in Germany by virtue of their head office or a designated branch. It furthermore accepts the collateral needed for participation in refinancing operations and the marginal lending facility (MLF). The Bundesbank checks that collateral is eligible and that the minimum reserve requirement is satisfied. In this manner, the Bundesbank contributes crucially to the implementation of monetary policy in the euro area.

Monetary policy refinancing operations have traditionally been used to steer liquidity and interest rates in the market and signal the stance of monetary policy. The Eurosystem’s regular monetary policy refinancing operations provide euro area banks with temporary liquidity in the form of central bank reserves. These operations include the consecutive main refinancing operations (MROs) that are conducted weekly with a maturity of one week. MROs traditionally play a key role in steering interest rates and liquidity in the market and signalling the stance of monetary policy. In addition, the Eurosystem regularly offers its counterparties longer-term refinancing operations (LTROs) each month, normally with a maturity of three months. 3  

Fixed-rate full allotment was introduced for both operations for the first time in October 2008. Under this approach, banks receive as much liquidity at the (fixed) main refinancing rate as they bid for, provided they pledge adequate collateral. Since then, banks have been able to obtain more liquidity from the refinancing operations overall than they need to meet the minimum reserve requirement. On aggregate, this leads to the creation of excess liquidity, i.e. credit balances on the banks’ accounts with the central bank over and above the reserve requirement. On balance, the larger the volume of excess liquidity, the further short-term money market rates will be below the MRO rate. 

Standing facilities rank as important instruments for steering short-term interest rates as well. The MLF and the deposit facility are aimed at providing or absorbing overnight liquidity, signalling the stance of monetary policy, and bounding short-term money market rates. Banks are able to receive central bank reserves overnight at the interest rate on the MLF (the MLF rate) to meet their short-term individual liquidity needs. The MLF rate is higher than the MRO rate. This gives monetary policy counterparties something of an incentive to obtain the liquidity they need in the market or by participating in regular monetary policy refinancing operations. Any excess liquidity that is not needed to satisfy the minimum reserve requirement 4 can be deposited by banks with the central bank at the interest rate on the deposit facility (deposit facility rate, DFR). That rate is lower than the MRO rate. Depending on the size of that policy rate spread, monetary policy counterparties will have an incentive to offer their excess liquidity in the money market, provided the relevant market rates are higher than the DFR.

Ever since the euro was introduced, the operational framework for implementing Eurosystem monetary policy has also comprised a set of instruments for conducting structural operations. These include reverse transactions, outright transactions and the issuance of ECB debt certificates. However, the Eurosystem has not yet used structural operations to provide or absorb liquidity. 

In the past, the Eurosystem has responded flexibly to special situations, using instruments within its mandate that went beyond the operational framework for implementing monetary policy. 5 These aimed to ease monetary policy on top of the reduction in the key interest rates and were intended to help to “preserve favourable bank lending conditions and the smooth transmission of monetary policy”, 6 for example. The instruments included three series of targeted longer-term refinancing operations (TLTROs), starting in 2014, as well as a range of monetary policy asset purchase programmes. Although there is no provision for these non-standard monetary policy measures in the operational framework for implementing monetary policy, they did adopt some elements from that framework. The TLTROs had a similar operational structure to the LTROs, even if they did pursue different objectives and had a far more complex design. 7 The asset purchase programme (APP) adopted in 2014 and the pandemic emergency purchase programme (PEPP) launched in 2020, on the other hand, differ more strongly in design terms from the outright asset purchases (or sales) laid down in the operational framework: asset purchases and sales under the framework for implementing monetary policy are only envisaged as structural operations – i.e. to adjust the banking sector’s structural liquidity position vis-à-vis the Eurosystem. The APP and PEPP, by contrast, were concerned with additional monetary policy easing and, in the case of the PEPP, also with responding to threats to the orderly functioning of the monetary policy transmission mechanism. 

Non-standard monetary policy measures created substantial excess liquidity for an extended period of time. Non-standard monetary policy measures like the TLTROs,APP and PEPP created far more central bank liquidity than was needed to satisfy the minimum reserve requirement and cover liquidity needs from autonomous factors. 8 This excess liquidity is held by banks either in the deposit facility or in other accounts with the national central bank, depending on the interest rate conditions.

The non-standard monetary policy measures meant that the Eurosystem significantly expanded its balance sheet and also saw the structure of its balance sheet change. Monetary policy securities portfolios went from not featuring on the assets side of the Eurosystem’s balance sheet before mid-2009 to becoming an item that peaked at €4,970 billion in 2022, accounting for around 60 % of total assets. Now as then, holdings under the asset purchase programmes remain the main source of credit balances held by banks with the Eurosystem. The TLTROs, too, experienced very strong take-up owing to what were, at times, extremely favourable interest rate conditions, amounting to around €2,200 billion at the end of 2022. Excess liquidity created by these measures peaked at €4,658 billion in 2022 (see Chart 2.1). On balance, these non-standard monetary policy measures sharply reduced demand from monetary policy counterparties for the regular MROs and LTROs, which left the regular operations playing only a comparatively minor role over the past decade.

Now that the non-standard measures are being scaled back, the regular MROs and LTROs are regaining prominence. Counterparty take-up of refinancing operations is an essential part of the smooth conduct of monetary policy. Bank participation in these operations is desired by the Eurosystem, making it an integral part of the demand-driven approach adopted by the ECB Governing Council. 9 Various factors look set to shape counterparty demand for refinancing operations going forward. First and foremost, there is the banking system’s structural liquidity position vis-à-vis the Eurosystem, given that banks need to at least cover any future structural liquidity deficit on aggregate so as not to be in breach of the minimum reserve requirement. Other factors driving future demand are the cost to individual banks of obtaining liquidity and funding in the markets, liquidity regulations, but also the views taken by external stakeholders such as investors or rating agencies. Counterparty demand for Eurosystem refinancing operations averaged €26 billion between January and the end of May 2025, with the Bundesbank accounting for €4 billion of this amount. 

Excess liquidity will continue to decline gradually over the coming years due to the scaling back of monetary policy securities portfolios. In May 2025, excess liquidity amounted to €2,754 billion on average. This means that it has declined by 42 % since its peak in November 2022 but remains at a highly elevated level. The previous decline in excess liquidity was primarily attributable to the final maturity of the TLTROs. 10 Since July 2023, excess liquidity has been falling mainly due to the scaling back of holdings under the APP and, since mid-2024, additionally under the PEPP. 11 Over the same period, there has been a sharp fall in government deposits and net foreign assets, which are currently remunerated at less attractive rates compared with market conditions than during the previous period of negative policy rates. 12

The DFR’s move into positive territory in September 2022 triggered a shift in excess liquidity from current accounts to the deposit facility. After the Eurosystem generally remunerated monetary policy counterparties’ excess current account deposits at the negative DFR, these are not remunerated in the positive interest rate environment. To benefit from the return to positive deposit rates since September 2022, monetary policy counterparties have shifted excess deposits from their central bank accounts to the deposit facility (see Chart 2.1). 

Banks are currently generating considerable interest income owing to the significantly positive DFR and high balances in the deposit facility. 13 This also applies to German credit institutions, which hold a disproportionately large share of excess liquidity in the euro area in relation to their total assets. This raises the question of the extent to which the very large holdings of central bank reserves may have changed monetary policy transmission during the period of significant interest rate increases (see the supplementary information entitled “What role can central bank reserves play in monetary policy transmission via the banking system?”).

The ECB Governing Council agreed on key parameters and features for the operational framework for implementing monetary policy. In March 2024, the ECB Governing Council announced changes to the operational framework for implementing monetary policy. These changes concern how central bank liquidity will be provided over the coming years in the face of still significant but gradually declining excess liquidity. The short-term money market rates will be steered closely in line with the Governing Council’s monetary policy decisions. 14 The changes adopted have no impact on the monetary policy stance, interest rate policy or the scaling back of the monetary policy portfolio. 15 Rather, in the context of balance sheet normalisation, they are intended to ensure that the tools, instruments and procedures for implementing monetary policy remain appropriate. 

Important aspects of the way monetary policy was previously implemented remain unchanged. The regular monetary policy refinancing operations (MROs and LTROs) will continue to be conducted as fixed rate tender procedures with full allotment. The Governing Council is thus making clear that, by normalising the Eurosystem balance sheet, it does not wish to return to a system of balanced liquidity conditions that existed in the first decade of the euro. Furthermore, the minimum reserve system remains unchanged. 16 A broad collateral framework will be maintained for refinancing operations in future. 17 Lastly, the ECB Governing Council agreed to continue to steer the monetary policy stance through the DFR. 18 It expects short-term money market interest rates to evolve in the vicinity of the DFR, with tolerance for some volatility as long as it does not blur the signal about the intended monetary policy stance. However, changes to monetary policy implementation were needed so that this outcome in the markets can be achieved even after the balance sheet has normalised. 

One key immediate change made by the ECB Governing Council was to reduce the spread between the MRO rate and the DFR from 50 basis points to 15 basis points as of 18 September 2024. The Governing Council justified this change on the grounds that the narrower spread would incentivise bidding in the weekly operations, so that short-term money market rates would be likely to evolve in the vicinity of the DFR. The Governing Council also stated that the spread would limit the potential scope for volatility in short-term money market rates. At the same time, it will leave room for money market activity and provide incentives for banks to seek market-based funding solutions. In addition, the MROs are intended to play a central role again in future in meeting banks’ liquidity needs. This is likely to mean that the structural liquidity needs of the banking sector will also be partly covered by MROs (and probably also by LTROs, depending on credit institutions’ demand), with banks themselves ultimately determining the resulting volume of excess liquidity with their aggregate bidding behaviour. 

The Eurosystem will provide liquidity through a broad mix of instruments and will, in future, conduct structural operations alongside the existing monetary policy refinancing operations. Structural operations will be used to influence the banking system’s structural liquidity position vis-à-vis the Eurosystem. However, these operations will only be introduced at a later stage, namely “once the Eurosystem balance sheet begins to grow durably again” (see Section 4.2), i.e. when changes in the balance sheet are no longer driven by the run-off of asset holdings under the purchase programmes. In future, the ECB Governing Council would like to make use of both structural refinancing operations and a structural portfolio of securities. Both types of structural operations have been optional instruments in the Eurosystem’s operational framework for implementing monetary policy from the outset, but have not been used so far. The Governing Council’s further remarks on structural operations should be understood as meaning that the desired excess liquidity is not to be generated by structural operations: the structural operations are intended to “make a substantial contribution to covering the banking sector’s structural liquidity needs”, i.e. not to fully cover it. 

The Governing Council agreed on six principles that will guide monetary policy implementation in future. The key parameters and features of the framework (see Section 3.1 of this article) agreed by the Governing Council are in line with these principles. If it is necessary to adjust the parameters in future, the Governing Council aims to ensure that monetary policy remains in line with the established principles. 19

With these principles, the ECB Governing Council is acting on and interpreting various provisions of the European Treaties. It is no coincidence that the principle of effectiveness is top of the list. The effective implementation of the monetary policy stance by steering short-term money market rates closely in line the Governing Council’s monetary policy decisions corresponds closely with the primary objective of price stability. 21 Tolerating some volatility in money market rates is already an implicit acknowledgement that the Eurosystem acts in accordance with the principle of an open market economy. 22 One hallmark of a market economy is, for example, that scarcity, but also financial risk, can be reflected in financial market prices and thus in the interest rates of money market transactions. The importance of the principle of an open market economy is underlined by the fact that the Governing Council also lists it here as a separate principle. 

The principles for the future implementation of monetary policy also include assessments by the ECB Governing Council not directly covered by mandate but based on past experience, for example. This applies, in particular, to the principles of robustness, flexibility and efficiency. The principle of robustness underpins, for example, the decision to maintain the full allotment procedure for regular monetary policy refinancing operations irrespective of liquidity conditions. The explicit reference to a financially sound Eurosystem balance sheet takes account of the fact that various non-standard monetary policy measures of the recent past have, on balance, weighed significantly on the Eurosystem’s finances. By contrast, the use of regular monetary policy instruments, which constitute the operational framework for implementing monetary policy, have not made any notable contribution to these adverse effects on earnings.

There may be trade-offs between different principles. This applies, for example, to the principle of effectiveness and to the principle of an open market economy. The latter principle suggests a sufficiently wide spread between the individual key monetary policy interest rates to provide incentives for banks to obtain liquidity and financing via markets. However, excessive volatility in interest rates could impair the signalling function of the key monetary policy interest rates with regard to the monetary policy stance and conflict with the principle of effectiveness. It is therefore important to weigh up a potential reduction in the volatility of money market rates against the consequences of lower market activity. 23  

Principles can also be mutually reinforcing. One example is the possible interplay between the principle of robustness and the principle of flexibility. On the one hand, robustness promotes flexibility: an operational framework with a wide range of instruments provides banks with different business models with flexible and needs-based access to central bank reserves. On the other hand, flexibility strengthens robustness: a flexible supply of central bank reserves is a prerequisite for the operational framework to function in an environment of both scarce and abundant reserves. 

The Eurosystem’s balance sheet is shrinking; in future, excess liquidity will be increasingly determined by banks’ demand for central bank loans. At present, excess liquidity is largely provided through monetary policy securities holdings. As the gradual balance sheet run-off progresses, banks’ demand in the monetary policy refinancing operations will increasingly affect the level of excess liquidity over the coming years. 

The transition to demand-based provision of central bank liquidity will also change the composition of the central bank balance sheet. A schematic depiction of the Eurosystem’s current balance sheet structure can be found on the left-hand side of Chart 2.3. The right-hand side of Chart 2.3 is a stylised illustration of how the Eurosystem balance sheet could look in future. The gradual reduction of the monetary policy asset portfolio means that the share of regular monetary policy refinancing operations (MROs and LTROs) on the assets side will steadily increase. 

MROs will play a key role in covering the banking sector’s liquidity needs in future. As balance sheet normalisation progresses, banks will increasingly participate regularly in MROs and LTROs. Overall, counterparties themselves will determine the level of excess liquidity in future based on their bidding behaviour. In the process, refinancing operations will reach many monetary policy counterparties. The level of demand for excess liquidity could fluctuate over time. From the perspective of monetary policy counterparties, demand in the regular refinancing operations is likely to be influenced markedly by the respective business models and the relevant bank-specific liquidity and financing costs in the markets. In addition, new technologies in the financial sector (e.g. distributed ledger technology) may play a role, the exact implications of which cannot be predicted at present. The relative advantages of monetary policy refinancing operations compared with market-based liquidity and financing sources for individual credit institutions are also likely to be shaped by regulatory factors, particularly liquidity regulation. 

Liquidity regulation requirements are also likely to impact demand for refinancing operations in future. For instance, banks must hold a minimum amount of high-quality liquid assets (HQLA) under the liquidity coverage ratio (LCR) to cover calculated liquidity outflows. 24 HQLA mainly comprise securities that are assumed to be reliably marketable even during periods of stress and, in most cases, are also eligible as central bank collateral, as well as central bank reserves and cash holdings in the form of banknotes and coins. Compliance with the LCR is intended to ensure that banks can withstand liquidity stress as defined by regulatory requirements for a certain period of time. Most recently, banks significantly exceeded the LCR requirements on average, partly due to very high levels of excess liquidity. Since the beginning of 2022, the share of central bank reserves in Eurosystem banks’ total HQLA has been falling as a result of the decline in excess liquidity.

If banks receive central bank reserves via refinancing operations in return for non-HQLA collateral such as credit claims, their LCR improves. This collateral transformation occurs irrespective of the (residual) maturity of the refinancing operations, as no run-off should be included in the LCR for central bank loans. 25 The fixed rate full allotment procedure and the fixed spread between the MRO rate and the DFR make this regulatory effect of participation in monetary policy refinancing operations easy for counterparties to calculate. In the case of a narrow spread, the Eurosystem has to weigh up the potential reduction in volatility and lower market activity against possibly higher collateral transformation (see Section 3.2 of this article). 26 In this context, there can be interactions between prudential regulation and monetary policy.

Taken in isolation, the spread between the MRO rate and the DFR, which has narrowed from 50 basis points to 15 basis points, is increasing incentives for collateral transformation. Initially, in the case of a narrow spread between the MRO rate and the DFR, using collateral transformation to meet HQLA needs driven by the LCR is an attractive option for credit institutions. The associated demand for refinancing operations can change based on how monetary policy instruments are designed. In addition, as excess liquidity declines, short-term market interest rates are likely to increase compared with the MRO rate and create incentives for banks to participate in refinancing operations. This would make refinancing operations for the purposes of fulfilling the LCR more attractive in future. As a result, the LCR could have an indirect impact on demand for central bank loans and thus on the size of the Eurosystem’s balance sheet. Owing to the continued low demand for MROs and LTROs and the Eurosystem’s ongoing balance sheet run-off, the scope of collateral transformation will probably increase in future. Looking ahead, widening the interest rate spread between the DFR and the MRO rate would be one way to more clearly distinguish demand for monetary policy refinancing operations from banks’ compliance with regulatory liquidity requirements.

Taken in isolation, the further reduction of the Eurosystem’s balance sheet could lead to a decline in banks’ average LCR. The considerable amount of excess liquidity at present has contributed to the LCR requirements being heavily overfulfilled on average. 27 Banks could therefore respond to the decline in excess liquidity provided by increasing demand for refinancing operations with the central bank in order to maintain their previous LCR level through collateral transformation. At the same time, the balance sheet run-off could reduce LCR overfulfilment throughout the system. 28 A lower overall LCR level could have a downward effect on the level of bank-specific internal limits for LCR fulfilment, thus reducing regulatory demand for refinancing operations compared with a situation where bank-specific LCR targets remain high. 29  

Exactly when structural operations will be introduced is unclear, as is the total volume of these operations. According to the ECB Governing Council’s statement, structural operations will be introduced once the Eurosystem balance sheet begins to grow durably again. The Eurosystem’s balance sheet is expected to contract considerably in the coming years, mainly as the securities purchased by the Eurosystem under the monetary policy purchase programmes starting in 2014 gradually mature. At the same time, demand for regular monetary policy refinancing operations is likely to grow slowly at first from a very low level. The Eurosystem estimates that excess liquidity will be around €1,500 billion at the end of 2027, (with monetary policy securities holdings remaining around €2,800 billion; see Chart 2.1). However, future excess liquidity resulting from monetary policy counterparties’ aggregate demand for MROs and LTROs will probably be lower. 

In the case of constant autonomous factors, the size of the Eurosystem balance sheet may increase if the requested volume of MROs and LTROs consistently grows at a faster pace than the maturing monetary policy securities holdings are declining. In this instance, the condition set by the ECB Governing Council for the introduction of structural refinancing operations would be met. In addition, the Eurosystem balance sheet may also increase permanently due to the trend growth of autonomous factors. Another guidepost for the gradual introduction of structural operations in future is the structural liquidity needs of the banking sector (arising from autonomous factors and minimum reserve requirements). According to the ECB Governing Council’s statement, structural operations will make a substantial contribution to covering these needs. A structural liquidity deficit would remain as a result, the size of which would have to be determined. The volume requested under the MROs and LTROs would comprise the remaining liquidity deficit and future excess liquidity. The Eurosystem is monitoring changes in the banking sector’s liquidity conditions and the structural liquidity position to determine when would be appropriate to introduce initial structural operations. From the Bundesbank’s perspective, information on the banking system’s actual demand for refinancing operations should ideally be obtained first in order to implement structural operations at the appropriate time. The Bundesbank expects structural refinancing operations to be introduced before a structural portfolio is built up.

It is also unclear how the ECB Governing Council will divide structural operations between structural refinancing operations and a structural portfolio. Central banks can provide reserves by issuing secured loans (refinancing operations) or by purchasing assets such as bonds. How structural operations are divided should be in line with the principles set out in Section 3.2. For instance, structural refinancing operations are likely to have shorter maturities than a structural securities portfolio. In principle, securities holdings in a structural portfolio can be adjusted on a trading day basis. Thus, both types of monetary policy operations respect the principle of flexibility in different ways. A structural portfolio can provide liquidity in the long term with relatively low operational costs and therefore fulfils one aspect of the principle of efficiency. 30 In contrast to secured refinancing operations, however, central banks also assume higher default risk and, depending on the nature of the operations, higher interest rate risk. 

It is logical to start with refinancing operations when it comes to gradually introducing structural operations in future. While the banking system moves towards a structural liquidity deficit in a few years’ time, there will still be considerable legacy bond holdings on the Eurosystem’s balance sheet. The ECB Governing Council has announced that it will take these holdings into account in the structural operations. The decision regarding the future long-term distribution of the volume of operations would have to factor in the specification of structural refinancing operations, on the one hand, and the structural portfolio, on the other. All decisions would have to take into account the principles outlined in Section 3.2 and the mandate, including its legal limitations. From the Bundesbank’s perspective, suitably designed structural refinancing operations will be able to cover the majority of the banking system’s structural liquidity needs in future. In principle, a higher level of provision via structural refinancing operations appears beneficial, as this reaches more monetary policy counterparties than asset purchases for the purposes of a structural portfolio.  

The modalities of the future structural portfolio have yet to be defined. Alongside the timing of initial portfolio purchases (taking into account legacy bond holdings in the APP and PEPP portfolios), the average maturity of the portfolio and how it is assembled, it would be necessary to specify, amongst other things, which bond classes, residual maturities or credit quality need to be purchased. These parameters influence the purchasable universe of securities. The relationship between the target volume of the portfolio to be determined and the purchasable universe must be a logical one. If a structural portfolio contains public sector bonds, it requires parameters that ensure its compatibility with the prohibition of monetary financing of government, in particular. 

The design of the structural longer-term refinancing operations is being analysed in detail. They should differ from LTROs, as the more similar the operations are, the more likely interactions are. In addition to the frequency of execution and the maturity, the bidding and allotment procedure, the accepted collateral and the interest arrangements, it is also necessary to specify how the operations will be included in the tender calendar with the MROs and LTROs. Regular underbidding would need to be avoided wherever possible. In this context, it appears appropriate to conduct the operations as variable rate tender procedures with a limited allotment volume, which potentially may not have an excessively high minimum bid rate. Compared with fixed rate tender procedures, variable rate tender procedures allow banks to submit bids at different interest rates. This strengthens the principle of an open market economy. 

At present, monetary policy securities holdings are a key determinant of excess liquidity. Scaling these back is causing the Eurosystem balance sheet to shrink. The ECB Governing Council’s decisions of 13 March 2024 have transformed the operational framework for implementing monetary policy. Since September 2024, the spread between the MRO rate and the DFR has been 15 basis points. In future, banks will determine the level of excess liquidity through their demand for MROs and LTROs. Furthermore, structural operations will make a significant contribution to covering the banking sector’s structural liquidity needs in future. The timing, volume and distribution of the structural operations and how they will be divided between refinancing operations and the portfolio are still uncertain. An in-depth analysis of the design of the new longer-term refinancing operations and the new structural portfolio is also being conducted.

Based on the experience gained in the interim period, the ECB Governing Council will review the key parameters of this operational framework in 2026. The Bundesbank is closely monitoring the further design and development process of the operational framework for implementing monetary policy. To this end, it is playing an active role in Eurosystem bodies. Together with partners in the Eurosystem, the Bundesbank is analysing how the financial system is adapting to the reduction in monetary policy securities holdings and the associated decline in excess liquidity. Close monitoring covers various indicators, including, in particular, the factors influencing demand for central bank reserves. In addition, differences in demand behaviour depending on banking business models is of interest. The Bundesbank consults regularly with monetary policy counterparties and other market participants on the effects of using monetary policy tools and instruments. This deepens the understanding of the implications of adjustments to the operational framework in various market segments. The Bundesbank contributes relevant findings and analytical results to the review process. 

The ECB Governing Council has expressed its readiness to adjust the design and parameters of the operational framework earlier, if necessary, to ensure that the implementation of monetary policy remains in line with the established principles. One indicator of this could be a decline in market-based bank funding, for example. Previous observations suggest that the gradual balance sheet run-off supports the role of interbank markets and the flexible redistribution of central bank reserves across categories of banks and national borders. 31 The Eurosystem is monitoring the effectiveness of the 15-basis-point spalexead between the DFR and the MRO rate and whether adjustments might be appropriate. The smooth implementation of monetary policy will continue to be ensured in future. 

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