EN 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 1 April 2005 
at the request of Lietuvos bankas on draft rules on minimum reserve 
requirements for credit institutions 
(CON/2005/8) 
 
Introduction 1. On 14 February 2005 the European Central Bank (ECB) received a request from Lietuvos bankas 
for an opinion on draft rules on  minimum reserve requirements for credit institutions (hereinafter 
the ‘draft rules’). Lietuvos bankas is the nationa l authority that will adopt the draft rules.  
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 consulta tion of the European Central Bank by national 
authorities regarding draft legislative provisions
1, as the draft rules relate to instruments of 
monetary policy of a non-participating Member St ate. In accordance with the first sentence of 
Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has 
adopted this opinion.   
3. The main objective of the draft rules is to improve compatibility between the minimum reserve 
system in Lithuania and the Eurosystem’s minimum reserve system. In particular, the draft rules propose: (a) that minimum reserves shall be calcula ted and verified according to the balance sheet 
statistical reports of monetary financial institutions ; (b) that all minimum reserves shall be held in 
the national currency (the litas); and (c) that the balances of credit institutions held as minimum 
reserves shall be remunerated. At the same time , Lietuvos bankas wishes to retain certain specific 
features of the national system for minimum reserves in Lithuania. In addition, Lietuvos bankas has requested the ECB to clarify whether the Eurosystem minimum reserve requirements would be applicable to credit unions established in Lithua nia, once Lithuania has adopted the euro.   
4. The ECB notes that the legal framework underlying the Eurosystem’s minimum reserve system is 
laid down in: (i) Article 19 of the Statute of the European System of Central Banks and the 
European Central Bank, (ii) Council Regula tion (EC) No 2531/98 of 23 November 1998 
concerning the application of minimum reserves by the European Central Bank
2, and 
(iii) Regulation (EC) No 1745/2003 of the European  Central Bank on the application of minimum 
                                                      
1  OJ L 189, 3.7.1998, p. 42. 
2  OJ L 318, 27.11.1998, p. 1. 
2 reserves (ECB/2003/9)3. The purpose of these legal acts, whic h are directly applicable to and 
binding on credit institutions, is to ensure that  the terms and conditions for the Eurosystem’s 
minimum reserve system are uniform throughou t the euro area. Taking into account the 
aforementioned legal framework for the Eurosystem’s reserve requirements, the ECB wishes to provide the following comments on the draft rules.  
General observations 5. First, in the course of preparing for the introduction of the euro in Lithuania, Lietuvos bankas will 
need to examine whether the Eurosystem’s requi rements can be fulfilled effectively and whether 
the necessary measures have been adopted in Lith uania to ensure that the authorities have the 
requisite powers, under Lithuanian law, to assist a nd cooperate with the ECB in order to collect and 
verify the information necessary for the Eu rosystem’s minimum reserve system.  
6. Second, because the Eurosystem’s minimum reserve system is highly dependent on the 
Eurosystem’s statistical reporting requirements for its data, and because any changes to the statistical reporting requirements will have a direct influence on the size of minimum reserve holdings, a key element for achieving consistency between the Lithuanian minimum reserve system and that of the Eurosystem is the introduction into Lithuanian law of statistical reporting 
requirements corresponding to those of the Eurosystem.  
7. Third, the ECB will have to consider introducing transitional arrangements for the application of 
the Eurosystem’s minimum reserve system for the introduction of the euro in Lithuania, as was the 
case when Greece adopted the euro on 1 January  2001. This would involve a transitional 
maintenance period for credit institutions located in Lithuania as well as transitional provisions for 
credit institutions located in other participating Member States.  
8. Taking these general observations into account, the ECB welcomes the initiative of Lietuvos 
bankas to review the minimum reserve system in Lit huania with a view to bringing it into line with 
the Eurosystem’s minimum reserve system. Th e ECB notes that, although non-participating 
Member States retain their powers in the field of monetary policy, it is nevertheless beneficial to 
gradually achieve consistency with Eurosystem st andards so that credit institutions can become 
acquainted with the minimum reserve requirements th at will apply when the euro is introduced in 
Lithuania.  
9. The ECB is also aware that Lietuvos Respublikos Seimas  (Lithuania’s Parliament) is currently 
considering a draft law to amend the Credit Unions  Act. This opinion is based on the law currently 
in force, and does not take account of any prop osed amendment to the Credit Unions Act.   
Applicability of the Eurosystem’s minimum res erve requirements to Lithuanian credit unions 
10. Concerning the query of Lietuvos bankas about the applicability of the Eurosystem’s minimum 
reserve requirements to credit unions established in  Lithuania upon the introduction of the euro in 
                                                     
 
3  OJ L 250, 2.10.2003, p. 10. 
3 Lithuania, the ECB notes at the outset that, in a nu mber of euro area Member States, credit unions 
are currently subject to Eurosystem minimum reserve requirements. The ECB notes that Article 2(1) of Regulation EC No  1745/2003 provides that the following categories of institutions 
are subject to minimum reserve requirements: (a) credit institutions as defined in the first subparagraph of Article 1(1) of Directive 2000/ 12/EC of the European Parliament and of the 
Council of 20 March 2000 relating to the taking- up and pursuit of the business of credit 
institutions
4 (hereinafter the ‘Consolidated Banking Dir ective’), other than participating national 
central banks (NCBs); and (b) branches, as define d in Article 1(3) of the Consolidated Banking 
Directive, of credit institutions as defined in th e first subparagraph of Article 1(1) of the same 
Directive, other than participating NCBs. The first subparagraph of Article 1(1) of the Consolidated 
Banking Directive defines a credit institution as ‘an undertaking whose business is to receive deposits or other repayable funds from the pub lic and to grant credits for its own account’. 
Article 2(3) of the Consolidated Banking Directiv e exempts certain institutions from the scope of 
its application, including in particular the NCBs of Member States, post office giro institutions and 
specifically listed national entities, including
5 credit unions established in Lithuania, with the sole 
exception of the Central Credit Union. However, th e fact that Lithuanian credit unions are exempt 
for prudential supervision purposes from the scope of application of the Consolidated Banking 
Directive does not automatically imply that they  would also be exempt from the Eurosystem’s 
reserve requirements established for monetary polic y purposes. Indeed, the ECB considers that in 
order to apply the Eurosystem’s reserve requirements it is necessary to carry out a material test as to whether an institution fulfils the criteria laid dow n in the first subparagraph of Article 1(1) of the 
Consolidated Banking Directive (i.e. whether its bus iness is to receive deposits or other repayable 
funds from the public and to grant credits for its  own account). Therefore, the ECB has examined 
whether Lithuanian credit unions fulfil the crite ria laid down in the first subparagraph of 
Article 1(1) of the Consolidated Banking Directive. 
11. Regarding the nature of the business of a Lithuani an credit union and whether this is ‘to receive 
deposits or other repayable funds from the public’ w ithin the meaning of the Consolidated Banking 
Directive, the ECB notes that, under the Lithuanian Act on credit unions
6 (hereinafter the ‘Credit 
Unions Act’), Lithuanian credit unions may recei ve deposits from various persons, including their 
members and associated members, as well as from associations of credit unions, associations, religious communities/associations, trade union orga nisations, charities registered in Lithuania, 
institutions authorised by the Government of Lithua nia and/or local authorities, and international or 
foreign charities. Also, before a credit union join s the Central Credit Union, it may receive deposits 
from other credit unions which are not members of the Central Credit Union. The ECB notes that, under the Credit Unions Act, a variety of persons may become members of a credit union, 
                                                     
 
4  OJ L 126, 26.5.2000, p. 1, as last amended by  Directive 2004/69/EC (OJ L 125, 28.4.2004, p. 44). 
5  Under the provisions of Annex II, Chapter 3 of the Accession Treaty 2003.  
6  Lithuanian Official Gazette,  1995, No 26-578, as amended.  
 The ECB also understands that the Act on credit unions is a special law in relation to the Act on co-operative companies 
(co-operatives). Lithuanian Official Ga zette, 1993, No 20-488 , as amended.  
4 including natural persons who are permanently re sident in Lithuania and certain legal entities 
registered in Lithuania (e.g., associations, organi sations of trade unions, religious communities and 
associations and agricultural cooperatives). The E CB also notes that, under the Credit Unions Act, 
a credit union may restrict its membership by refe rence to various criteria (e.g., employment in the 
same entity, membership of the same professional gr oup or organisation, or residence in the same 
township or ward). Also, a cr edit union may accept a variety of associated members, including 
individual (personal) enterprises,  economic partnerships, agricultu ral cooperatives, certain private 
companies controlled by a member(s) of a credit union, small enterprises, and natural persons who 
reside, work or study in the ward in which the credit union has its headquarters. The ECB further 
notes that, under the Credit Unions Act, deposits  paid into credit unions are subject to the 
Lithuanian deposit-guarantee scheme. 
12. Regarding whether it is the business of a Lithuani an credit union to ‘grant credits for its own 
account’ within the meaning of the Consolidated Banking Directive, the ECB notes that, under the Credit Unions Act, credit unions established in Lit huania may grant loans to their members for the 
purposes specified in the statutes of the credit unions. The ECB considers that the restriction 
allowing loans to be granted only for the purposes sp ecified in the statutes of credit unions may not 
be considered as restricting the capacity of credit unions to ‘grant credits for their own account’ 
within the meaning of the Consolidated Banking Directive. The ECB also  notes that, under the 
Credit Unions Act, credit unions are entitled to en gage in other activities appropriate for credit 
institutions. The ECB further notes that the Credit  Unions Act refers to credit unions as ‘credit 
institutions’. On the basis of the foregoing, the ECB considers that, under Lithuanian law currently 
in force, credit unions established in Lithuania may engage in certain activities which are common 
to credit institutions. In  particular, they may receive deposits and grant loans on their own account.  
13. However, the question remains whether Lithuanian  credit unions receive deposits ‘from the public’ 
within the meaning of the Consolidated Banking Di rective. The ECB understa nds that, in practice, 
certain Lithuanian credit unions may be rather small, have a narrow membership base and receive deposits from a restricted group. Yet, given that the compass of potential depositors in Lithuanian 
credit unions is wide, it is difficult to argue that  Lithuanian credit unions do not receive deposits 
‘from the public’, within the meaning of the Consolidated Banking Directive.  
14. In light of the above, the ECB considers that L ithuanian credit unions fall under the definition of a 
credit institution within the meaning of the Conso lidated Banking Directive, and will therefore be 
subject to the Eurosystem minimum reserve re quirements when Lithuania adopts the euro.  
The treatment of subscriptions to the capital of Lithuanian credit unions  15. The ECB notes that, under the Credit Unions Act, members of Lithuanian credit unions may 
withdraw from a credit union upon giving three mo nths’ written notice. The ECB understands that, 
upon such withdrawal, funds that have been paid as a subscription to the credit union’s capital may be repaid under the conditions laid down in the Cred it Unions Act. Consistent with this, the period 
5 within which the repayments must be made is determined by taking into account the financial 
position and liquidity of the credit union in question.  In any event, the capital has to be repaid 
within 12 months from the date of a member’s with drawal. In view of these provisions, it has to be 
considered whether such funds paid to the credit uni on should be regarded as being in the nature of 
deposits and, therefore, as liabilities against wh ich minimum reserves have to be held with 
Lietuvos bankas. This question has not been explic itly decided in the Eurosystem minimum reserve 
system and is subject to ongoing analysis and discussion. The ECB will provide any relevant 
information to Lietuvos bankas well in advance of the date on which the Eurosystem’s minimum reserve system becomes applicable to Lithuanian credit unions, thus ensuring a smooth transition to 
the new minimum reserve system. 
Technical comments 16. With regard to the detailed provisions of the draft rules, the ECB would like to offer the following 
technical comments which Lietuvos bankas may wish  to reflect upon already at this preparatory 
stage. 
17. Section 18 of the draft rules provides that, wher e a credit institution frequently revises its data on 
the reserve base or on the required reserves, Lietuvos bankas  may restrict its ability to make further 
revisions. The ECB notes that, in the Eurosystem’s minimum reserve system, revisions to data on 
the reserve base are generally not excluded given th at such revisions can help improve the quality 
of data. Nevertheless, systematic reporting of inco rrect data may be regarded, for the purposes of 
imposing sanctions for infringements of balance shee t statistical reporting requi rements, as ‘serious 
misconduct’, for which an increased sanction may be imposed (see Notice of the European Central 
Bank on the imposition of sanctions for infringeme nt of balance sheet statistical reporting 
requirements (2004/C 195/10)
7). In this regard, the ECB notes that, under Section 39 of the draft 
rules, taking into account the frequency of viol ations and/or the their impact on a credit 
institution’s reserve base and/or required r eserves, Lietuvos bankas may impose an increased 
penalty if, inter alia , it becomes evident that the credit institution has reported incorrect or 
incomplete data.  
18. The ECB draws attention to the fact that the penalties that Lietuvos bankas may impose under  
Section 39 of the draft rules concern failure to co mply with statistical reporting requirements (e.g., 
incorrect or incomplete reported data, or where the form of the report does not meet the set requirements, or if verification of the accuracy of  reported data is hindered). Although failure to 
comply with statistical reporting requirements di rectly influences the subsequent setting of the 
minimum reserve requirement, the ECB itself clear ly distinguishes between the two. The ECB’s 
specific sanctioning principles have been set out in two distinct notices, Notice of the European 
Central Bank on the imposition of sanctions for infri ngements of balance sheet statistical reporting 
                                                     
 
7  OJ C 195, 31.7.2004, p. 8. 
6 requirements (2004/C 195/10)8 and Notice of the European Central Bank on the imposition of 
sanctions for breaches of the obligation to  hold minimum reserves (2000/C 39/04)9. 
19. Section 41 of the draft rules provides that, upon the failure of a credit institution to comply with 
reserve requirements, Lietuvos bankas may increase its reserve requirement by up to three times 
the shortfall of the reserve requirement over the preceding maintenance period. In the context of 
the Eurosystem’s minimum reserve system, such a measure would not necessarily amount to a sanction on a credit institution since the reserve holdi ngs are remunerated at close-to-market rates. 
Moreover, some credit institutions might benefit from higher reserve requirements, by using the 
additional reserves as a buffer to offset their own liquidity shocks within the maintenance period. 
Although the measure is similar to the sanctioning provisions laid down in Article 7 of Council 
Regulation (EC) No 2531/98, there is an importa nt difference in that Council Regulation (EC) 
No 2531/98 stipulates that such a deposit of up to  three times the shortfall on the minimum reserve 
requirement shall be a non-interest-bearing de posit, thereby introducing a punitive element. 
20. This opinion will be published on the ECB’s website. 
  Done at Frankfurt am Main, 1 April 2005. 
 
[signed] 
 
The President of the ECB 
Jean-Claude TRICHET 
                                                     
 
8  OJ C 195, 31.7.2004, p. 8. 
9  OJ C 39, 11.2.2000, p. 3.