FRANKFURT, Sept 23 (Reuters) - The European Central Bank is studying ways of cutting a subsidy to banks that stands to cost it tens of billions of euros in interest, four sources told Reuters, in a move that is likely to attract a backlash from lenders.
To fight runaway inflation, the ECB has raised the rate it pays on the 4.6 trillion euros ($4.5 trillion) worth of banks' reserves that exceed requirements from -0.5% to 0.75% in less than two months.
This leaves the ECB on the hook for tens of billions of euros in annual interest on those reserves and threatens to burn a hole in the capital of the central banks in countries where most of the those reserves sit, with the Netherlands and Belgium already warning about imminent losses.
It also puts the ECB in the politically uncomfortable position of subsidising banks at a time when the public is struggling amid high inflation. ($1 = 1.0251 euros) (Reporting by Francesco Canepa, Frank Siebelt and Balazs Koranyi; Editing by Hugh Lawson)