Eurosystem excess liquidity drops to 2.5 trillion euros
An ECB report shows excess liquidity declined from 3.4 trillion to 2.5 trillion euros over 2024 and 2025 as key rates fell by 200 basis points. The balance sheet contraction proceeded smoothly while inflation returned to the two percent target.
A lower floor with narrower spreads
Between June 2024 and June 2025, the European Central Bank reduced the deposit facility rate by 200 basis points in eight 25 basis point steps to 2.0 percent.
The operational framework review of March 2024 confirmed that the deposit facility rate remains the primary tool for steering policy.
To support liquidity operations, the Governing Council narrowed the spread between the main refinancing operations rate and the deposit facility rate from 50 to 15 basis points in September 2024.
Policy rate transmission proved rapid and complete across money markets.
Unsecured overnight rates adjusted almost one-for-one with official cuts, while secured repo markets operated smoothly across jurisdictions as collateral scarcity eased.
Passive run-off and structural reforms
The Eurosystem balance sheet contracted significantly as monetary policy asset holdings fell from 5.1 trillion euros in late 2023 to 3.8 trillion euros by late 2025.
PEPP reinvestments ended in December 2024, coinciding with the full repayment of all outstanding TLTRO III operations.
In parallel, the central bank modernized its collateral framework by launching the Eurosystem Collateral Management System in June 2025 and integrating climate considerations, including a climate factor for corporate collateral effective from June 2026.
Smooth transition, future tests ahead
The report demonstrates that quantitative tightening can run on autopilot without destabilizing money markets.
However, the smooth absorption of excess liquidity relies heavily on currently favorable private bank funding conditions.
As reserves approach preferred minimum targets in 2026, the true test for the ECB's narrow rate spread design still lies ahead.