EN 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
14 December 2006  
at the request of Eesti Pank 
on a draft decree establishing a procedure to ca lculate and comply with reserve requirements  
(CON/2006/59) 
 
Introduction and legal basis  
On 27 November 2006 the European Central Bank (ECB) received a request from Eesti Pank for an 
opinion on a draft decree establishing a procedure to  calculate and comply with reserve requirements 
(hereinafter the ‘draft decree’). 
The ECB’s competence to deliver an  opinion is based on Article 105(4) of the Treaty establishing the 
European Community and Article 2(2) of C ouncil Decision 98/415/EC of 29 June 1998 on the 
consultation of the European Central Bank by natio nal authorities regarding draft legislative provisions1, 
as the draft decree relates to the instruments of mone tary policy. In accordance with the first sentence of 
Article 17.5 of the Rules of Procedure of the Europ ean Central Bank, the Governing Council has adopted 
this opinion. 
 1.  Purpose of the draft decree 
The purpose of the draft decree is to achieve great er convergence with the Ba sel II framework. The draft 
decree mainly amends the basis for calculating th e reserve requirement by means of excluding the 
residential mortgage loan portfolio, hence return ing to a purely liability-based reserve requirement 
calculation. In addition, a number of technical ch anges are introduced to the framework including an 
adjustment of the penalty rate, the abolition of the daily minimum level requirement on settlement 
accounts, and changes to the contractual relationshi p between Eesti Pank and credit institutions. It is 
envisaged that the draft decree will enter into force on 1 January 2007.  
 2. General observations 2.1  The ECB has already analysed the Estonian  minimum reserve system in Opinion CON/2006/3
2, 
where it emphasised the fact that differences be tween the Estonian and Eurosystem’s minimum 
reserve systems would need to be eliminated on adopti on of the euro by Estonia. In this context, the 
                                                 
1  OJ L 189, 3.7.1998, p. 42.  
2 ECB Opinion CON/2006/3 of 13 January 2006 at the request of  Eesti Pank on a draft decree establishing a procedure to 
calculate and comply with reserve requirements and draft decree amendi ng Decree No 12 of 12 July 2002 on credit 
institutions’ prudential ratios. 
 
2 ECB welcomes the proposed exclusion of the residen tial mortgage loan portfolio from the basis for 
calculating the reserve requirement, which brings the Estonian minimum reserve system closer to that of the Eurosystem
3. 
2.2 The ECB also welcomes the abolition of the daily minimum level requirement of 40 % on credit 
institutions’ settlement accounts with Eesti Pank, which further harmonises the Estonian minimum 
reserve system with that of the Eurosystem. 
2.3 The ECB takes note of the change in the penalty ra te which brings the Estonian penalty rate closer 
to the Eurosystem framework by making the rate dependent on a policy rate rather than applying a 
fixed rate (currently a 20 % annual rate is applie d). Nevertheless, the ECB would like to draw Eesti 
Pank’s attention to the fact that Eesti Pank’s pena lty rate is linked to the minimum bid rate of the 
Eurosystem’s main refinancing operations, whereas  the Eurosystem applies a rate linked to the 
marginal lending rate. Under the Eurosystem framework4 a payment of up to 5 percentage points 
above the marginal lending rate can be applied to  the amount of the reserve requirement which the 
relevant institution failed to provide. Depending on  the severity of the infringement the Eurosystem 
may also impose higher penalties, such as a payment of up to twice the marginal lending rate or 
require the relevant institution to establish a non-interest-bearing deposit with the ECB or the 
national central banks of up to three times the amount  of the reserve requirement which the relevant 
institution failed to provide.  
2.4 Moreover, as already noted in Opinion CON/2006/35, Article 1 of Appendix 1 to the draft decree 
establishing a procedure to calculate and comply with reserve requirements does not list all EU Member States. Furthermore, under Article 2 of A ppendix 1, a liquidity portfolio may contain only 
such debt securities that meet the criteria specified in the subsections of Article 2. In that context, 
the draft decree treats the debt issue in euro of the euro area Member States’ Governments 
differently from those of other EU Member Stat es’ Governments in terms of the required minimum 
credit rating. 
2.5  However, there are still significant differences between the Estonian minimum reserve system and 
that of the Eurosystem, which mainly derive fro m the different functions assigned to each of them. 
These differences from the legal framework under whic h the Eurosystem operates will have to be 
eliminated on adoption of the euro by Estonia. 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 of the European  Central Bank; (ii) Regulation (EC) No 2531/98; (iii) Regulation 
ECB/2003/9 of 12 September 2003 on the application of minimum reserves
6; and (iv) in relation to 
the definition and calculation of the reserve b ase, Regulation ECB/2001/13 of 22 November 2001 
                                                 
3  The ECB understands that Appendix 4 to the draft decree will also be amended accordingly. 
4  Article 7(1) of Council Regulation (EC) No 2531/98 of  23 November 1998 concerning the application of minimum 
reserves by the European Central Ba nk (OJ L 318, 27.11.1998, p. 1). Regula tion as amended by Regulation (EC) 
No 134/2002 (OJ L 26, 26.1.2002, p. 1). 
5 See paragraph 10 of Opinion CON/2006/3. 
6  OJ L 250, 2.10.2003, p. 10.  
 
3 concerning the consolidated balance sheet of  the monetary financial institutions sector7. The 
purpose of these legal acts, which are directly a pplicable to and binding on euro area credit 
institutions, is to ensure that the terms and conditions for the Eurosystem’s minimum reserve 
system are uniform throughout the euro area. In the Eurosystem’s framework, reserve requirements 
primarily pursue the aims of stabilising money mark et interest rates, and creating or enlarging a 
structural liquidity shortage.  
 This opinion will be published on the ECB’s website.   Done at Frankfurt am Main, 14 December 2006. 
 
[signed] 
 
The President of the ECB 
Jean-Claude TRICHET 
 
                                                 
7  OJ L 333, 17.12.2001, p. 1. Regulatio n as last amended by Regulation E CB/2004/21 (OJ L 371, 18.12.2004, p. 42).