Opinion of the European Central Bank of 1 September 2004 at the request of the Central Bank of Malta on draft amendments to Central Bank of Malta Directive No 1 on minimum reserve requirements (CON/2004/29)
Date: 2004-09-01
Institutions: European Central Bank
Subjects: Malta, credit institution, monetary policy, provision

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 1 September 2004 

at the request of the Central Bank of Malta  

on draft amendments to Central Bank of Malta Directive No 1 on minimum reserve requirements  

(CON/2004/29) 

1. 

On 2 August 2004, the European Central Bank (ECB) received a request from the Central Bank of 

Malta (CBM) for an opinion on a draft amendment to CBM Directive No 1 on minimum reserve 

requirements (hereinafter the ‘draft legislative provisions’). 

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  consultation  of  the  ECB  by  national  authorities 
regarding draft legislative provisions1, as the draft legislative provisions relate to an instrument of 

monetary  policy  of  a  non-participating  Member  State,  i.e.  minimum  reserve  requirements.  In 

accordance  with  the  first  sentence  of  Article 17.5  of  the  Rules  of  Procedure  of  the  ECB,  the 

Governing Council has adopted this opinion. 

3. 

The draft legislative provisions would allow the CBM to exempt, on a non-discriminatory basis, the 

following credit institutions from maintaining minimum reserve requirements: (i) those which are 

subject to winding-up or reorganisation proceedings; and (ii) those upon which the imposition of 

minimum reserve requirements would not serve the CBM’s monetary policy objectives. In reaching 

a  decision  to  grant  an  exemption  to  a  credit  institution  on  this  latter  basis,  the  CBM  would  be 

required to give due consideration to the extent to which that credit institution provides banking or 

ancillary  services  in  the  domestic  market  after  taking  into  account,  inter  alia,  that  institution's 

provision  of  credit  facilities,  its  involvement  in  the  Maltese  lira  interbank  market  and  its 

participation in the local payments system.  

4. 

The ECB notes that pursuant to Article 122(3) of the Treaty establishing the European Community, 

the basic tasks to be carried out through the ESCB to define and implement the monetary policy of 

the  Community  set  out  in  Article 105(2)  of  the  Treaty  do  not  apply  to  Member  States  with  a 

derogation,  such  as  Malta.  Thus,  as  also  further  set  out  in  Article  43.2  of  the  Statute  of  the 

European  System  of  Central  Banks  and  of  the  ECB,  the  central  banks  of  Member  States  with  a 

derogation retain their powers in the field of monetary policy according to national law.  

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OJ L 189, 3.7.1998, p. 42. 

 
 
 
                                                      
5. 

For the Eurosystem, minimum reserves are an important tool for the implementation of monetary 

policy which primarily fulfils the functions of stabilisation of money market interest rates and the 

creation or enlargement of a structural liquidity shortage. A similar exemption to that set out in the 

draft  legislative  provisions  also  exists  in  the  ECB’s  framework,  as  set  out  in  Article  2(2)  of 

Regulation ECB/2003/9 of 12 September 2003 on the application of minimum reserves. However, 

the draft legislative provisions and the ECB’s framework differ significantly in this respect.  

6. 

Exemptions from the ECB’s minimum reserves regime for euro area credit institutions, except as 

regards reorganisation measures, are extremely rare. Under Article 2(2) of Regulation ECB/2003/9 

the  ECB  may  exempt,  on  a  non-discriminatory  basis,  institutions  for  which  the  purpose  of  the 

ECB’s minimum reserves system would not be met by imposing reserve requirements upon them. 

In reaching a decision on any such exemption, the ECB is required to take into account one or more 

of the following three criteria: (i) whether the institution is pursuing special purpose functions; and 

(ii) whether  the  institution  is  not  exercising  active  banking  functions  in  competition  with  other 

credit  institutions;  and  (iii)  whether  the  institution  has  all  its  deposits  earmarked  for  purposes 

relating to regional and/or international development assistance. These criteria are strictly applied. 

Currently there is only one euro area credit institution with an exemption. 

7. 

The  ECB’s  possibility  to  exempt  therefore  is  much  narrower  than  that  provided  for  in  the  draft 

legislative provisions, because of the criterion that ‘the institution is not exercising active banking 

functions  in  competition  with  other  credit  institutions’.  Under  the  ECB’s  minimum  reserves 

system, this criterion is of general application, and it is understood as referring to the provision of 

any  banking  service  that  is  in  competition  with  banking  services  provided  by  other  credit 

institutions established in the European Union (and not only the euro area), irrespective of where 

such services are provided. Where any credit institution or relevant branch provides any banking 

service that is in any way in competition with other credit institutions, the ECB therefore considers 

that an exemption would not be appropriate.  

8. 

If  Malta  should,  in  due  course,  adopt  the  euro,  the  Eurosystem’s  regime  would  not,  as  described 

above, provide a possibility for an exemption such as that set out in the draft legislative provisions. 

The  ECB  therefore  recommends  inserting  an  additional  criterion  in  paragraph  10(b)  of  the  draft 

legislative  provisions,  namely  that  the  institution  is  not  exercising  active  banking  functions  in 

competition with other credit institutions established in the EU. 

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9. 

The  ECB  confirms  that  it  has  no  objection  to  the  competent  national  authorities  making  this 

opinion publicly available at their discretion. This opinion will be published on the ECB’s website 

six months after the date of its adoption. 

Done at Frankfurt am Main, 1 September 2004. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

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