Being aware is only half of it.

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In this module, we’ll explore one of the most significant transformations in the Portuguese banking sector over the last decade: the transition to a demand-based monetary policy system. We’ll look at what it is; why it’s happening now; and what it means for Portuguese banks, both from a strategic point of view and in terms of operations.

To explore this content, you can click on the profile of the character you’d like to listen to first: Tomás, with a strategic perspective on the transition; or Inês, with an operational perspective. Each pathway is independent and can be explored in whichever order you prefer. You can always go back and explore the other pathway — the two complement each other and, together, provide a complete view of the topic.

Tomás, I wanted to talk to you about something I’ve been thinking about. I’m trying to get a better grasp of what’s changing in the ECB’s operational framework and what that means in concrete terms for Portuguese banks. Since you’ve got a more strategic perspective on this, I wanted to ask: how do you frame this transition?

That’s a good question. We’re living through a structural shift that will define how banks manage liquidity over the coming years. To understand where we are, we need to understand where we’ve come from; and the figures tell that story very clearly. Portuguese banks’ reserves held at the central bank reached €62.7 billion in the first quarter of 2026. Just for reference, before 2020 that figure rarely went above €20 billion. It’s an order-of-magnitude shift in the sector’s balance sheet, and that cycle is now normalising.

And the bond portfolio reflects that too, right?

Exactly — and it’s an important point that often gets pushed into the background. The excess liquidity built up during the TLTRO period didn’t just sit in reserves. In December 2025, Portuguese banks’ securities portfolios amounted to €166.3 billion; which is €38.6 billion more than in December 2021. Foreign sovereign debt more than doubled and came to represent 38% of the total portfolio. It’s a profound reconfiguration of how the sector allocated the excess liquidity that the ECB injected. Let me give you a bit more context on what changed in the operating framework!

In March 2024, the ECB changed its operational framework for implementing monetary policy. The change may seem technical, but the implications are tangible. The previous system was essentially supply-based: the central bank estimated the system’s liquidity needs and injected that liquidity proactively. The new system turns that logic on its head: it’s the banks themselves that flag their needs, by taking part in refinancing operations. That’s why we refer to this new system as a demand-based system.

One of the most visible changes was the reduction in the spread between the rate on the deposit facility, and the rate on the main refinancing operations, from 50 to 15 basis points. This change was deliberate, as it makes access to the central bank’s refinancing operations economically attractive, without removing the incentives for interbank activity. Banks have reasons to take part in the ECB’s operations without that completely replacing the interbank market — which is exactly the balance the system is aiming for.

What this means for Portuguese banks is both a shift in mindset and in procedure. For years, liquidity was plentiful and relatively cheap. Treasury teams operated in an environment where the challenge was managing the surplus. The questions focused on where to allocate the surplus; how to optimise returns; or how to navigate negative rates. That environment has changed, and the surplus is becoming the norm. The question now is how to manage the growing scarcity efficiently, with the right tools and the appropriate operational readiness.

OK, so far I understand perfectly. But from a supervisory perspective, what are we looking for when we assess whether a bank is well positioned for this transition? Because it’s not just a question of having the right assets — it’s also a question of culture and internal processes.

You’re right, and it’s a point that’s worth developing. Strategic positioning starts with the data, but it doesn’t end there.

When we look at the Portuguese banking sector, the underlying indicators are positive. Household deposits reached a record high of €200.7 billion in December 2025, consolidating their position as the sector’s main source of funding. The loan-to-deposit ratio fell to 78%, a historically low level. And the Portuguese counterparties maintained significant volumes of mobilised collateral assets after the maturity of the TLTRO III, which ensures they have the capacity to take part in refinancing operations when needed.

But you’re right that structure is only part of the answer. A bank can have all the collateral assets in place and still not be ready, either because its internal processes haven’t been tested; because the teams aren’t familiar with the operating procedures, or because there’s still a cultural reluctance to the idea of turning to the central bank as part of routine liquidity management. It’s in that space — between the strength of the balance sheets and the teams’ readiness — that the difference is felt in practice.

The transition to a demand-based system is not a threat to well-prepared banks. It is a return to normality after an environment that, for a decade, was exceptional. What was extraordinary was the period of negative interest rates and unlimited liquidity. This return to a more demanding balance is, in fact, closer to how a healthy financial system normally works. Portuguese banks have the necessary foundations, with solid deposits, mobilised collateral, and balance sheets cleaner than they were a decade ago. What’s needed now is to ensure that operational readiness keeps pace with structural strength. That is precisely where ongoing training for treasury teams; for supervisors; and for everyone navigating this new environment, makes the difference.

Inês, in my work I keep a close eye on the macro data for this transition, such as reserves, the securities portfolio, and the operational framework. But your perspective is different from mine; you’re closer to institutions’ day-to-day reality. What are you seeing on the ground?

What I’m seeing is a transition that’s happening at very different speeds depending on the institution. There are banks that realised early on what was changing and proactively adjusted their internal processes. And there are others that still operate with the mindset of the previous period, when liquidity was plentiful; access to the central bank was seen as an emergency measure, and treasury management was relatively passive. That mindset is the main obstacle to adaptation. It’s not the assets, or the technical procedures, but the way teams think about the problem.

And how do you change that mindset? It doesn’t change overnight — and it doesn’t change just with instructions. It changes when people clearly see what’s happening and what’s expected of them.

During the years of TLTROs and abundant liquidity, Portuguese banks built up very significant reserves with the central bank. But when TLTRO III matured in December 2024, something interesting happened: Portuguese counterparties, instead of simply letting those positions run off, kept significant volumes of mobilised collateral assets. That is exactly the behaviour we expect: not waiting for pressure to prepare access to refinancing operations, but having that capability permanently ready.

What we’re trying to assess from a supervisory perspective isn’t just whether the bank has the right collateral assets, but whether it understands how to use them. For example, whether the operating procedures have been tested, whether the teams know what to do when it’s necessary to access the central bank’s facilities, and whether there is a clear plan for situations of liquidity stress. A bank may have an excellent collateral portfolio and still fail in practice if it has never carried out a real test of the mobilisation process.

There is a cultural aspect that is equally important. For years, there has been — and in some cases there still is — the idea that turning to the central bank is a sign of trouble. That idea does not reflect the reality of the new operational framework. The ECB was explicit: taking part in refinancing operations is a normal and expected part of liquidity management in this system. What is not acceptable is to find out, in a moment of pressure, that the processes have not been tested and that the teams are not prepared.

I agree, but Inês, the sector’s underlying figures are positive, with deposits at record highs, a low loan-to-deposit ratio, and stronger balance sheets than a decade ago. Doesn’t that shield banks from the operational issues you’re describing?

It offers partial protection — and it’s important to acknowledge that. A bank with a strong deposit base and pledged collateral starts from a much better position than a bank without those conditions. But structural soundness and operational readiness are different dimensions.

A bank can have the best collateral assets in the system and still not be prepared to mobilise them efficiently under pressure. This can happen because the procedures have not been tested; because the internal decision-making chain is not clear; or because the treasury teams have never carried out a real operation with the central bank outside a simulation context. That is why operational preparedness is not a technical detail — it is a strategic requirement.

The Portuguese banking system is, overall, well placed for this transition. The progress of the last decade — in the strength of balance sheets, in asset quality, and in the funding base — creates favourable conditions. But the new environment demands more than a good starting position. It demands active preparation, proven processes, and teams that understand not only what the new operating framework implies in theory, but what it means in practice for their day-to-day work. It is that preparation — strategic and operational — that determines who navigates this transition well and who arrives late.

Two angles on the same phenomenon — but the conclusion is consistent. Abundant liquidity was a historical exception, and the system is returning to a more demanding equilibrium. An equilibrium that requires preparation. Portugal’s banking sector has the right foundations. What makes the difference now is ensuring that institutions’ operational readiness and internal culture keep pace with the structural strength that has been built over the past decade.

Before we finish this module, how about we check what’s stuck? We’ve got three quick questions about what we’ve just explored.

We’ll start with March 2024, when the ECB changed the operational framework for monetary policy. What was one of the most significant changes in this update?

What characterises a demand-based monetary policy system?

Which of the following statements best describes the position of the Portuguese banking sector at the end of 2025?

Thank you for taking part in this questionnaire! These three questions cover the core concepts we explored today: the new operational framework; the logic of the demand-based system; and the position of the Portuguese banking sector in this transition. If any answer was less clear, the pathways we went through are available to review at any time.

The transition to a demand-based monetary policy system is one of the most significant developments for the Portuguese banking sector in the last decade. Understanding its mechanisms — both strategic and operational — is essential for professionals who will be navigating this new environment. The e-learning activities that follow explore each of these topics in greater depth, with interactive exercises, practical scenarios and knowledge checks that reinforce what you have just explored. We hope you’ll continue this training with us. Until next time.