Opinion of the European Central Bank at the request of Banque de France under Article 109f (6) of the Treaty establishing the European Community (the "Treaty") and Article 5.3 of the Statute of the EMI on a draft instruction No. 2-98 relating to the operations of Banque de France on the money market (CON/98/29)
Date: 1998-06-10
Institutions: European Central Bank
Subjects: France, bond, monetary policy, national law, public borrowing

OPINION OF THE EUROPEAN CENTRAL BANK

at the request of Banque de France under Article 109f (6) of the Treaty establishing the

European Community (the “Treaty”) and Article 5.3 of the Statute of the EMI on a draft

instruction No. 2-98 relating to the operations of Banque de France on the money market

CON/98/29

1.

On 27 May 1998, the EMI received a request for an opinion from Banque de France on a draft

instruction  No.  2-98  and  its  annexes  (the  “Draft  Instruction”)  relating  to  the  operations  of

Banque de France on the money market and implementing Decision No. 97-2 of 27 March 1997

of the Monetary Policy Council of Banque de France. An Explanatory Memorandum was also

submitted to the EMI.

2.

In  accordance  with  Article  109l  (2)  of  the  Treaty,  the  ECB  has  taken  over  the  advisory

functions of the EMI which has gone into liquidation upon the establishment of the ECB on 1

June 1998. The ECB’s competence to deliver an opinion is based on Article 1.1, second indent,

of the Council Decision (93/717/EC) of 22 November 1993 on the consultation of the EMI by

the authorities of the Member States on draft legislative provisions.

3.

The Draft Instruction is purported to replace Banque de France’s Instructions No. 1-95 and 2-95

dated  11 December 1995  and  Instruction  No.  3-97  dated  27  March  1997.  According  to  the

Explanatory  Memorandum,  the  main  objectives  of  the  Draft  Instruction  are  (i)  to  extend  the

collateral eligible for repurchase transactions to Treasury bonds; (ii) to allow for variable rates

tender  procedure  and  (iii)  to  improve  the  procedure  rules  for  mobilisation  of  French  private

claims.

4.

The ECB welcomes that the above mentioned changes introduced by the Draft Instruction in the

present  regulation  of  money  market  operations  prepare  for  a  smooth  transition  with  the

beginning of Stage Three of EMU. The ECB acknowledges, however, that the Draft Instruction,

in its present drafting, purports to cover only the period starting from the date it is implemented

in  June  1998,  until  the  end  of  Stage  Two.  In  this  context,  the  ECB  stresses  that  further

amendments to the Draft Instruction will be needed, as from the start of Stage Three of EMU,

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to put it fully in line with the ESCB rules and principles and that the new text will have to be

submitted by Banque de France to the ECB.

5.

The Draft Instruction implements the possibility stated in the Decision No. 97-2 of 27 March

1997  of  the  Monetary  Policy  Council,  for  Banque  de  France  to  accept  Treasury  bonds  as

underlying assets for repurchase agreements. This will apply to Banque de France’s monetary

policy  operations  as  well  as  within  the  framework  of  the  TBF  system.  This  modification  has

been technically facilitated by the implementation of the system RGV (Relit Grande Vitesse) in

which Treasury bonds as well as Treasury bills will now be treated. The  ECB  welcomes  this

measure as broadening the range of assets eligible as collateral, being therefore in line with its

current preparatory work on this area.

6.

The  Draft  Instruction  creates  the  possibility  for  Banque  de  France  to  use  variable  rate  tender

procedure which, according to the Explanatory Memorandum, will be open as from September

1998. In the same line, the Draft Instruction suppresses the “Opérateurs Principaux de Marché”

as  being  credit  institutions  acting  as  exclusive  Banque  de  France’s  intermediaries  for  tender

procedures and repurchase transactions entered into for 5 to 10 days. The ECB welcomes these

amendments  to  Banque  de  France’s  money  market  operations  framework  as  preparatory

measures in view of the beginning of Stage Three of EMU.

7.

Further to the Explanatory Memorandum, the ECB acknowledges that the changes brought by

the Draft Instruction to the procedure for the mobilisation of French private claims, as allowing

for a better identification of the claims transferred by the counterparties, will comfort the legal

framework  of  such  procedure  under  French  law  No.  81-1  of  2  January  1981.  The  ECB

consequently welcomes such improvements. 

8.

The  ECB  has  several  remarks  on  individual  provisions  of  the  Draft  Instruction  itself.  In  the

framework  of  repurchase  agreements,  Article  2.1.2.4,  last  paragraph,  states  that  in  case  a

substitution is accepted by Banque de France, securities may only be substituted by securities

of  the  same  category  as  defined  in  Article  2.1.2.2.  The  ECB  notes  that  this  restriction  is  not

mentioned in the repurchase agreement itself figuring in Annex I.A. For the sake of clarity, it

could prove useful that the repurchase agreement itself mentions or refers to these provisions.

9.

In  the  context  of  the  mobilisation  of  French  private  claims,  Article  2.2.2.3  specifies  the  risk

control measures to be applied to such claims. The ECB reminds that as from the start of Stage

Three the appreciation of risk control measures for tier two assets by National Central Banks

will  be  subject  to  ECB  approval.  From  this  standpoint,  the  amount  stated  in  Article  2.2.2.3

might  not  be  consistent  with  the  measures  to  be  defined  and  which  will  apply  as  from  the

beginning of Stage Three.

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10. As  for  tender  procedure  rules,  the  two  last  parts  of  Article  3.1.2(b)  provide  rules  relating  to

counterparties’ submission of tender bids and as well as the need for counterparties to cover the

liquidity  which  will  be  granted  to  them  by  sufficient  underlying  assets.  The  ECB  is  of  the

opinion that those general provisions which are stated for variable rate tender procedures only

should also apply to fixed rate tender procedures.

11.

The ECB has the following remarks  concerning  the  agreement  relating  to  the  mobilisation  of

private claims (“convention de mobilisation globale de créances privées”).

-  Article  4  states  that  the  transfer  of  private  claims  is  made  to  secure  credit  obtained  from

Banque de France, or “when it is possible, from another National Central Bank of the ESCB”.

As  not  sufficiently  precise,  this  sentence  could  create  confusion  as  implying  that  Banque  de

France’s domestic counterparties could get refinancing from another NCB within the euro area,

whilst remote access is not currently being contemplated by the ESCB as from the beginning of

Stage Three. The same ambiguity exists in the last sentence of Article 8 of the convention.

-  Article  12  first  sentence  refers  to  “France  Métropolitaine”  only  in  connection  with  the

application  of  the  Monetary  Policy  Council’s  Decision  to  be  enacted  as  for  the  beginning  of

Stage Three. From this stand point the ECB reminds that any restriction to the scope of Banque

de  France  eligible  counterparties  to  those  established  on  the  territory  of  metropolitan  France

only, as from the beginning of Stage Three, is not consistent with the Treaty. This would imply

indirectly that the access to the counterparties located in the overseas departments to Banque de

France operations is to be made through the IEDOM, which raises the issue of the compatibility

with  the  Treaty  of  the  current  institutional  framework  for  monetary  matters  in  the  overseas

departments.

10 June 1998