EN 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 23 October 2006 
at the request of Latvijas Banka 
on a draft regulation for the use of Latv ijas Banka’s monetary policy instruments 
(CON/2006/49) 
 
Introduction and legal basis  
On 28 September 2006 the European Central Bank (E CB) received a request from Latvijas Banka for an 
opinion on a draft regulation for the use of Latvijas Ba nka’s monetary policy instruments  (hereinafter the 
‘draft regulation’). 
The ECB’s competence to deliver an  opinion is based on Article 105(4) of the Treaty establishing the 
European Community and the Article 2(2) of Coun cil 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 regulation relates to monetary policy inst ruments. In accordance w ith 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 regulation 
The main objective of the draft regulation is to impl ement similar valuation and operational principles for 
all Latvijas Banka’s monetary policy instruments and to achieve further harmonisation between the 
monetary policy operations of Latv ijas Banka and the Eurosystem. The draft regulation will replace and 
consolidate a number of current regulations gove rning Latvijas Banka’s monetary policy operations. 
 2. General observations  2.1 Although non-participating Member States retain th eir powers in the field of monetary policy, it is 
nevertheless beneficial for them to gradually ach ieve consistency with Eurosystem standards so 
that credit institutions operating in their territo ries can become acquainted with the requirements 
that will apply once these Member States have adopt ed the euro. Such gradual harmonisation prior 
to the adoption of the euro will assist a smooth in tegration of the national central bank into the 
                                                 
1  OJ L 189, 3.7.1998, p. 42.  
2 Eurosystem. In this regard, the draft regulation will contribute to the alignment of the Latvian 
framework for the use of monetary policy in struments with that of the Eurosystem. 
2.2 Nevertheless, the ECB would like to draw Latvij as Banka’s attention to some important remaining 
differences between the Eurosystem’s requirement s and Latvia’s monetary  policy framework that 
will need to be eliminated before Latvia adopts the euro. 
 3. Specific observations 3.1 The Latvian definition of ‘counterparties’ is narrowe r than that used in the Eurosystem. This is due 
to the inclusion of certain operational criteria as a requirement for all counterparties in Latvia, such 
as the requirement for counterparties to particip ate in the securities settlement system, whereas the 
Eurosystem allows different operational criteria to  apply for different types of monetary policy 
operations. 
Participation in the securities settlement syst em, or the requirement to have an own safe-
custody/pledge/securities account, are important opera tional criteria, but might not be necessary for 
participation in certain operations, such as having acc ess to a deposit facility or for participation in 
tenders for fixed-term deposits etc.     
3.2 With regard to plausibility checks for bids subm itted by counterparties, Article 2.1.10 of the draft 
regulation provides that where the aggregate amount of a counterparty's bid for a tender exceeds the total allotment established by Latvijas Banka, Latvijas Banka will discard all the counterpart’s 
bids for that tender. Section 5.1.4 of the Eurosystem’s General Documentation
2 states that national 
central banks may also discard any bid which is below the minimum bid amount or which is below 
any minimum or above any maximum accepted inte rest rate/price/swap point. Furthermore, the 
national central banks may discard bids which are incomplete or which do not follow the pro forma 
example. 
                                                 
2  ‘The implementation of monetary po licy in the euro area: General Documentation on Eurosystem monetary policy 
instruments and procedures’ annexed to Guideline ECB/ 2000/7 of 31 August 2000 on monetary policy instruments and 
procedures of the Eurosystem, OJ L 310,  11.12.2000, p. 1. Guidelines as ame nded by Guideline ECB/2005/2 (OJ L 111, 
2.5.2005, p. 1). 
3  
3.3 At present, Latvijas Banka accepts only fixed in come securities as collateral for its monetary policy 
operations. The Eurosystem, however, recognises a wi der circle of assets as eligible collateral: 
asset-backed securities, credit claims and retail mort gage-backed debt instruments are also included 
in the Eurosystem’s single list of eligible collate ral. The ECB stresses the importance of preparing 
the legal and operational framework necessary to en able Latvijas Banka to admit such assets as 
collateral by the time Latvia adopts the euro. 
 This opinion will be published on the ECB’s website.   Done at Frankfurt am Main, 23 October 2006. 
 
[signed] 
 
The President of the ECB 
Jean-Claude TRICHET