EN 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 13 November 2008  
at the request of Lietuvos bankas 
on a draft resolution amending the rules on  reserve requirements for credit institutions 
(CON/2008/66) 
 
Introduction and legal basis  
On 5 November 2008 the European Central Bank (ECB)  received a request from Lietuvos bankas for an 
opinion on a draft resolution amending the rules on reserve requirements for credit institutions as approved by Resolution No 38 of 14 March 2002 of the Board of Lietuvos bankas (hereinafter the ‘draft 
resolution’). Some of the amendments  contained in the draft resolution, in particular the reduction in the 
reserve ratio from 6 % to 4 %, were adopted by the Board of Lietuvos bankas on 6 November 2008 and entered into force immediately.  
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 Counc il Decision 98/415/EC of 29 June 1998 on the 
consultation of the European Central Bank by natio nal authorities regarding draft legislative provisions
1, 
as the draft resolution relates to instruments of mone tary policy of a Member State that has not adopted 
the euro. In accordance with  the first sentence of Article 17.5 of th e Rules of Procedure of the European 
Central Bank, the Governing Council has adopted this opinion. 
 1.  Purpose of the draft resolution 
1.1 The purpose of the draft resolution is: (a) to rel ease part of the resources of credit institutions by 
allowing them to use eligible collateral which they  hold to fulfil their reserve requirements; and 
(b) to create more flexible liquidity mana gement conditions for credit institutions.  
1.2 Specifically, the draft resolution provides fo r an amendment of the composition of minimum 
reserves, i.e. it allows credit institutions tempor arily, until 23 April 2009, to maintain up to 50 % of 
their minimum reserves in eligible securities, the eligibility criteria of which are defined in the 
proposed new Annex 3 to the rules on reser ve requirements for credit institutions. 
 2. General observations  2.1 Concerning the reduction of the reserve ratio fro m 6 % to 4 %, which has already entered into 
force, the ECB understands the need  for an accelerated procedure. However, this does not prejudice 
                                                 
1  OJ L 189, 3.7.1998, p. 42.  
2 the duty of national authorities under Article 105(4)  of the Treaty to consult the ECB on draft 
legislative provisions falling within its fields of competence. The ECB would therefore appreciate receiving future consultations earlier, even on initial dr afts of legislation, to allow more time for it 
to prepare an opinion. 
2.2 The ECB notes that although Member States that ha ve not adopted the euro retain their powers in 
the field of monetary policy, it is nevertheless beneficial for them to achieve consistency with 
Eurosystem standards so that credit institutions  in those Member States can become acquainted 
with the reserve requirements that will apply to th em when the euro is in troduced. In its past 
opinion on the Lithuanian minimum reserves regime
2, the ECB emphasised in particular the need 
for further alignment of the Lithuanian minimum reserves regime with Eurosystem standards. In 
particular, the ECB made the point that Lithuanian credit unions should also be subject to reserve requirements
3. Consequently, it should be noted that a ll comments that the ECB made previously 
concerning the Lithuanian minimum reserves regime still remain valid. 
 3. Specific comments  3.1 The aim of the draft resolution is to temporarily amend the composition of minimum reserves in 
Lithuania, namely to allow up to 50 % of minimum reserves to be held on securities accounts of a credit institution on which eligible securities are he ld as an alternative to being held on reserve 
(settlement) accounts.  
3.2 Although the ECB understands that this temporar y measure aims to address ongoing tensions in the 
money market, the ECB has the following observati ons. First, it is questionable whether this 
measure is in line with the purpose of a minimum reserves system, i.e. an instrument for the 
performance of money market management and mone tary control functions. Second, this measure 
may have potential implications for the risk mana gement of the balance sheet of Lietuvos bankas. 
Third, using securities in variable proportions to  fulfil part of a credit institution’s reserve 
requirements may also create difficulties in the mi nimum reserves system about the nature of such 
reserves held with Lietuvos bankas. Moreover, the proposed measure would require both Lietuvos 
bankas and credit institutions to apply strict cont rol measures, which are currently lacking in the 
draft resolution. Fourth, the ECB notes that the secu rities used to fulfil reserve requirements would 
be accounted for on the basis of their nominal valu e. Although such calculation is relatively easy to 
implement, the ECB notes that the nominal valu e of the securities may substantially differ from 
their mark-to-market value at the end of maintena nce period, especially in periods of financial 
distress. Such a mechanism may therefore impl y providing significant subsidies to credit 
institutions and therefore cause distortions in the securities markets.  
                                                 
2  See ECB Opinion CON/2005/8 of 1 April 2005 at the reques t of Lietuvos bankas on draft rules on minimum reserve 
requirements for credit ins titutions. This opinion is  available on the ECB’s we bsite at www.ecb.europa.eu. 
3 See in particular paragraph 14 of ECB Opinion CON/2005/8 in which the ECB stressed that L ithuanian credit unions fall 
under the definition of a credit institution within the meaning of the Consolidated Banking Directive, and will therefore 
be subject to the Eurosystem reserve requ irements when Lithuania adopts the euro. 
3 3.3 Finally, the ECB notes that the proposal contained in the draft resolution differs substantially from 
the Eurosystem’s reserve requirements framework.  Such significant differences would have to be 
eliminated on adoption of the euro by Lithuania. 
 This opinion will be published on the ECB’s website.   Done at Frankfurt am Main, 13 November 2008. 
 
[signed] 
 
The President of the ECB 
Jean-Claude TRICHET