EN 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 1 September 2004 
at the request of the Central Bank of Malta  
on draft amendments to Central Bank of Malta Directive No 1 on minimum reserve requirements  
(CON/2004/29) 
 1. On 2 August 2004, the European Central Bank (ECB) received a request from the Central Bank of 
Malta (CBM) for an opinion on a draft amendment to CBM Directive No 1 on minimum reserve requirements (hereinafter the ‘draft legislative provisions’). 
2. The ECB’s competence to deliver an opinion is based on Article 2(2) of Council 
Decision 98/415/EC of 29 June  1998 on the consultation of th e ECB by national authorities 
regarding draft legislative provisions
1, as the draft legislative provisions relate to an instrument of 
monetary policy of a non-participating Member State, i.e. minimum reserve requirements. In 
accordance with the first sentence of Article 17.5 of the Rules of Procedure of the ECB, the 
Governing Council has adopted this opinion. 
3. The draft legislative provisions would allow the CBM to exempt, on a non-discriminatory basis, the 
following credit institutions from maintaining mi nimum reserve requirements: (i) those which are 
subject to winding-up or reorganisation proceedi ngs; and (ii) those upon which the imposition of 
minimum reserve requirements would not serve the CBM’s monetary policy objectives. In reaching 
a decision to grant an exemption to a credit institution on this latter basis, the CBM would be required to give due cons ideration to the extent to which that credit institution provides banking or 
ancillary services in the domestic market after taking into account, inter alia , that institution's 
provision of credit facilities, its involvement in the Maltese lira interbank market and its 
participation in the local payments system.  
4. The ECB notes that pursuant to Article 122(3) of  the Treaty establishing the European Community, 
the basic tasks to be carried out through the ESCB to define and implement the monetary policy of 
the Community set out in Article 105(2) of the Treaty do not apply to Member States with a derogation, such as Malta. Thus, as also further set out in Article 43.2 of the Statute of the 
European System of Central Banks and of the EC B, the central banks of Member States with a 
derogation retain their powers in the field of  monetary policy according to national law.  
                                                     
 
1  OJ L 189, 3.7.1998, p. 42. 
2 5. For the Eurosystem, minimum reserves are an impo rtant tool for the implementation of monetary 
policy which primarily fulfils the functions of stabilisation of money market interest rates and the creation or enlargement of a structural liquidity s hortage. A similar exemption to that set out in the 
draft legislative provisions also exists in the ECB’s framework, as set out in Article 2(2) of 
Regulation ECB/2003/9 of 12 September 2003 on the application of minimum reserves. However, 
the draft legislative provisions and the ECB’s fra mework differ significantly in this respect.  
6. Exemptions from the ECB’s minimum reserves regi me for euro area credit institutions, except as 
regards reorganisation measures, are extremely ra re. Under Article 2(2) of Regulation ECB/2003/9 
the ECB may exempt, on a non-discriminatory basi s, institutions for which the purpose of the 
ECB’s minimum reserves system would not be met by imposing reserve requirements upon them. In reaching a decision on any such exemption, the E CB is required to take into account one or more 
of the following three criteria: (i) whether the in stitution is pursuing special purpose functions; and 
(ii) whether the institution is not exercising ac tive banking functions in  competition with other 
credit institutions; and (iii) whether the institu tion has all its deposits earmarked for purposes 
relating to regional and/or  international development assistance. These criteria are strictly applied. 
Currently there is only one euro area cr edit institution with an exemption. 
7. The ECB’s possibility to exempt therefore is much  narrower than that provided for in the draft 
legislative provisions, because of the criterion that  ‘the institution is not exercising active banking 
functions in competition with other credit in stitutions’. Under the ECB’s minimum reserves 
system, this criterion is of general application,  and it is understood as referring to the provision of 
any banking service that is in competition w ith banking services provided by other credit 
institutions established in the European Union (and  not only the euro area), irrespective of where 
such services are provided. Where any credit ins titution or relevant branch provides any banking 
service that is in any way in competition with ot her credit institutions, the ECB therefore considers 
that an exemption would not be appropriate.  
8. If Malta should, in due course, adopt the euro, the Eurosystem’s regime would not, as described 
above, provide a possibility for an exemption such as that set out in the draft legislative provisions. 
The ECB therefore recommends inserting an addition al criterion in paragraph 10(b) of the draft 
legislative provisions, namely that the institutio n is not exercising active banking functions in 
competition with other credit institutions established in the EU. 
3 9. The ECB confirms that it has no objection to the competent national authorities making this 
opinion publicly available at their discretion. This opinion will be publis hed on the ECB’s website 
six months after the date of its adoption. 
  Done at Frankfurt am Main, 1 September 2004. 
 
[signed] 
 
The President of the ECB 
Jean-Claude TRICHET