EN 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 10 October 2005  
at the request of the Central Bank of Cyprus on  a draft directive on the maintenance of minimum 
reserves with the Central Bank of Cyprus  
(CON/2005/35) 
 
Introduction 1. On 8 August 2005 the European Central Bank (ECB) received a request from the Central Bank of 
Cyprus (CBC) for an opinion on a draft directive on the maintenance of minimum reserves with the 
Central Bank of Cyprus (hereinafter the ‘draft directive’).  
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 directive relates to an instrument of 
monetary policy, i.e. minimum reserves, of a non- participating Member State. 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 purpose of the draft directive is to amend the CBC’s minimum reserve regime with a view to 
the future application of the ECB’s minimum reser ve requirements in Cyprus on adoption of the 
euro. The draft directive lays down detailed rules on, inter alia , (a) the scope of application of the 
obligation to hold minimum reserves with the CBC, including exemptions from that obligation; and 
(b) the reserve base, the reserve ratios and th e procedure for calculating minimum reserves and 
notifying banks and designated financial institu tions thereof; and (c) the periods over which 
compliance with reserve requirements will be calc ulated; and (d) the remuneration to be paid on 
minimum reserves held by banks and designated fi nancial institutions with the CBC; and (e) the 
infringement procedure and sanctions to be imposed for breach of the CBC’s minimum reserve requirements.  
Legal framework and general observations 4. The legal framework underlying the Eurosystem ’s minimum reserve regime is laid down in 
(i) Article 19 of the Statute of the European Sy stem of Central Banks and the European Central 
Bank; (ii) Council Regulation (EC) No 2531/98 of  23 November 1998 concerning the application 
                                                     
 
1  OJ L 189, 3.7.1998, p. 42. 
 
2 of minimum reserves by the European Central Bank2; and (iii) Regulation ECB/2003/9 of 
12 September 2003 on the application of minimum reserves3. The purpose of this legal framework, 
which is directly applicable to and binding on eu ro area credit institutions, is to ensure that the 
terms and conditions of the Eurosystem’s mi nimum reserve regime are uniformly applied 
throughout the euro area.  
5. First, in the course of preparing for the introduc tion of the euro in Cyprus, the CBC will need to 
examine whether the Eurosystem’s minimum reserve  requirements can be effectively fulfilled in 
Cyprus and whether all necessary measures have been adopted to ensure  that the competent 
authorities have the legal power to assist a nd cooperate with the ECB on the collection and 
verification of the information necessary for the operation of the Eurosystem’s minimum reserve regime. The ECB understands that the CBC is currently reviewing its Statutes to inter alia  ensure 
that it will be in a position to meet the Eurosystem ’s requirements, also with regard to minimum 
reserves.   
6. Second, because the Eurosystem’s minimum reserve regime is highly dependent for its data on the 
Eurosystem’s statistical reporting regime and b ecause any changes to this regime would have 
implications for minimum reserve holdings, the CB C is advised that a key element for achieving 
consistency between the Cypriot minimum reserve regime and that of the Eurosystem is the incorporation into Cypriot law of statistical reporting requirements corresponding to those of the 
Eurosystem and their correct application. A r ecent general assessment by the ECB of the CBC’s 
statistical preparedeness suggests a converg ence between the CBC’s statistical reporting 
requirements and those of the ECB
4. 
7. Third, the ECB may have to consider introduc ing certain transitional arrangements for the 
application of the Eurosystem’s minimum reserv e regime on the introduction of the euro in 
Cyprus5 such as, for instance, a transitional mainte nance period for credit institutions located in 
Cyprus to meet the ECB’s mi nimum reserve requirements.  
8. Without prejudice to these general observations, the ECB welcomes the CBC’s initiative to review 
the Cypriot minimum reserve regime  with a view to bringing it into line with that of the 
Eurosystem. Although non-participating Member Stat es retain their powers in the field of monetary 
policy, it is nevertheless beneficial for them gr adually to achieve consistency with Eurosystem 
standards so that credit institutions operating in th eir territory can already prepare for the minimum 
reserve requirements that will apply on ce the euro has been introduced.  
                                                      
2  OJ L 318, 27.11.1998, p. 1. 
3  OJ L 250, 2.10.2003, p. 10. 
4  See ECB Opinion CON/2005/13 of 30 May 2005 at the request of the Central Bank of Cyprus on a draft directive on the 
reporting by monetary financial institutions of their monthly balance sheets. 
5  As in the case of Regulation ECB/2000/11 of 2 November 2000 concerning transitional provisions for the application of 
minimum reserves by the European Central Bank following th e introduction of the euro in Greece (OJ L 291, 18.11.2000, 
p. 28).  
 
3 Technical comments 
9. Section 13 of Part V of the draft directive effec tively restricts a credit institution’s ability to revise 
its data on the reserve base or on the required reserves, by only allowing one business day for revisions to be communicated to the CBC. Noting the role of timely revisions in improving the 
quality of minimum reserve related data, the E CB invites the CBC to consider extending the 
deadline in Section 13, Part V of the draft direc tive for the communication by credit institutions to 
the CBC of data revisions. 
10. The second sentence of Section 8 of Part III of the draft directive appears to be misleading. This 
sentence concerns the standard deduction applicab le in cases where the actual amount of debt 
securities issued with an agreed maturity of up to two years and held by other Cypriot credit 
institutions cannot be proved. It should be noted that the standard deduction mentioned in this 
section is not applicable to the whole of the reser ve base (deposits and debt securities issued) but 
only to the total outstanding amount of debt securities issued with an agreed maturity of up two years.  
11. Finally, the ECB notes that the definition of wi nding-up proceedings in Section 2 of the draft 
directive appears to disregard the fact that Part XIII of the Cypriot Banking Law
6 (hereinafter the 
‘Banking Law’) specifically regulates such proceed ings in the case of banks and electronic money 
institutions. The CBC is therefore invited to recons ider the draft directive’s definition of winding-
up proceedings, which currently refers to the Cypriot Companies Law7 instead of referring, as it 
should, to the lex specialis  provisions of Part XIII of the Banking Law.  
12. Without prejudice to the preceding observations, the ECB considers that the draft directive is 
otherwise generally consistent  with Regulation ECB/2003/9. 
Applicability of minimum reserve requiremen ts to cooperative credit societies  
13. The ECB notes that the draft directive applies the CBC’s minimum reserve requirements to all 
credit institutions operating in Cyprus except fo r cooperative credit institutions (hereinafter 
‘cooperatives’) which, unlike other credit instituti ons operating in Cyprus, are not supervised by 
the CBC. Moreover, the ECB notes that the explanat ory memorandum to the draft directive states 
that cooperatives ‘may be incorporated in the CBC’ s minimum reserve system at a later stage’.  
14. Concerning the applicability of the Eurosystem’s minimum reserve requirements to cooperatives 
on the introduction of the euro in Cyprus, the ECB notes that Article 2(1) of Regulation ECB/2003/9 provides that the following categories of institutions are subject to minimum reserve requirements (a) credit institutio ns, 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
8 
                                                      
6  N.66(I)/1997, Ar.3168, 18.7.97, as amended. 
7  Cap.113, as amended. 
8  OJ L 126, 26.5.2000, p. 1. 
 
4 (hereinafter the ‘Consolidated Banking Directive’),  other than participating national central banks 
(NCBs); and (b) branches of credit institutions, as defined in Article 1(3) thereof, other than 
participating NCBs. The first subpa ragraph 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 public and to grant cred its for its own account’. Article 2(3) of the 
Consolidated Banking Directive exempts certain  institutions from its scope of application 
including, in particular, NCBs, post office giro institutions and specifi c national institutions.  
15. The ECB notes that cooperatives have been granted a derogation from the scope of application of 
the Consolidated Banking Directive until 31 December 20079. However, this temporary derogation 
does not automatically entail their exempti on from the Eurosystem’s minimum reserve 
requirements that were established for monetary policy purposes. Indeed, the ECB considers that, 
for the purposes of deciding on the applicability  of the Eurosystem’s minimum reserve 
requirements to an institution or group of institutions , it is necessary to test whether that institution 
or institutions fulfil the criteria laid down in the first subparagraph of  Article 1(1) of the 
Consolidated Banking Directive, i.e. whether th eir business is to (i) receive deposits or other 
repayable funds from the public; and (ii) grant credits for their own account. Furthermore, the ECB notes that cooperatives are treated as credit institu tions for the purposes of Cypriot law, although 
they are not subject to the provisions of the Ba nking Law. Therefore, the ECB supports the CBC’s 
intention, as indicated in the explanatory memorandum  to the draft directive, to already consider 
incorporating cooperatives into the CBC’s minimum reserve regime, as this would smoothen their 
transition to the Eurosystem’s minimum reserve framework.  
16. This opinion will be published on the ECB’s website. 
  Done at Frankfurt am Main, 10 October 2005. 
 
[signed] 
 
The President of the ECB 
Jean-Claude TRICHET 
                                                     
 
9  Annex VII to the Act of Accession (ent itled’ List referred to in Article 24 of  the Act of Accession: Cyprus’), provides 
under Title 2 (Freedom to Provide Serv ices) as follows: ‘In Cyprus, Direc tive 2000/12/EC shall not apply to the 
Cooperative Credit and Savings Soci eties, in so far as they are not in confor mity with the provisions of this Directive, 
until 31 December 2007. As from the date of accession and until th e end of the above period the Cypriot authorities shall 
inform the Commission at the beginning of each year a bout the number of non-conforming Cooperative Credit and 
Savings Societies which continue to be excluded, as well as the market share that they represent.’