The amounts of money that banks deposit with the central bank depend on a great deal of variables. Banks are for instance obliged to hold minimum reserves at the central bank, which result from deposits placed with banks by their customers. Banks receive interest on their mandatory reserves, which is at the same level as the main refinancing rate (currently 0.05%). Besides their mandatory reserves, banks can hold voluntary deposits, depending on such factors as liquidity risks, market conditions, economic outlook and costs. Bank deposits with DNB for instance soared between 2007 and 2012, due to the stressed money market conditions at the time.
The ongoing reduction of deposits held with DNB in the last two quarters, which is also visible in the rest of the euro area, may partly be explained by the introduction of negative interest rates on the deposit facilities of central banks in the euro area, which compels banks to pay interest on their voluntary deposits. In early June 2014, the ECB announced that it would cut its deposit facility rate to -0.1% from 0%, where it had been since July 2012. Last month a further reduction to -0.2% was announced.
Partly due to the drop in deposits and loans made to banks, DNB's balance sheet was reduced to EUR 111 billion in the third quarter of 2014. At the end of June, the balance sheet total still came to almost EUR 120 billion, with a historical peak of EUR 291 billion having been recorded in the first quarter of 2012.
Chart: Balances of banks with DNB (EUR billion) and ECB deposit rate
(%, right hand axis)