Guideline of the European Central Bank of 3 February 2005 amending Guideline ECB/2000/7 on monetary policy instruments and procedures of the Eurosystem (ECB/2005/2)
Date: 2005-02-03
Institutions: European Central Bank
Subjects: European Central Bank, central bank, euro area, financial legislation, liquidity control, provision, single monetary policy

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II

(Acts whose publication is not obligatory)

EUROPEAN CENTRAL BANK

GUIDELINE OF THE EUROPEAN CENTRAL BANK

of 3 February 2005

amending Guideline ECB/2000/7 on monetary policy instruments and procedures of the Eurosystem

(ECB/2005/2)

(2005/331/EC)

THE GOVERNING COUNCIL OF THE EUROPEAN CENTRAL BANK,

(4)

In accordance with Article 12(1) and Article 14(3) of the
Statute, ECB guidelines
form an integral part of
Community law,

Having regard to the Treaty establishing the European
Community and in particular to the first
indent of Article
105(2),

HAS ADOPTED THIS GUIDELINE:

Having regard to the Statute of the European System of Central
Banks and of
the European Central Bank and in particular
Article 12(1) and Article 14(3) in conjunction with the first
indent of Article 3(1), Article 18(2) and the first paragraph of
Article 20,

Whereas:

Article 1

Principles, instruments, procedures and criteria
for the implementation of the Eurosystem’s single
monetary policy

(1)

(2)

(3)

and procedures

Achieving a single monetary policy entails defining the
the
instruments
to be used by
Eurosystem, consisting of
the national central banks
(NCBs) of Member States that have adopted the euro
(hereinafter the participating Member States) and the
in order to implement
European Central Bank (ECB),
the
such policy in a uniform manner
participating Member States.

throughout

The ECB has the authority to establish the necessary
guidelines
single
monetary policy and the NCBs have an obligation to act
in accordance with such guidelines.

Eurosystem’s

implement

the

to

Recent changes to the definition and implementation of
the Eurosystem’s single monetary policy need to be
reflected appropriately by replacing Annex I to the ECB
and
Guideline
procedures of the Eurosystem that is currently in force.

on monetary

instruments

policy

Annex I
monetary
of
Eurosystem (1) is replaced by the Annex to this Guideline.

to Guideline ECB/2000/7 of 31 August 2000 on
the
and

instruments

procedures

policy

Article 2

Verification

The NCBs shall forward details of the texts and means by which
they intend to comply with this Guideline to the ECB by
15 March 2005 at the latest.

(1) OJ L 310, 11.12.2000, p. 1. Guideline as last amended by

Guideline ECB/2003/16 (OJ L 69, 8.3.2004, p. 1).

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Article 3

Entry into force

This Guideline shall enter into force two days after its adoption. Article 1 shall apply from 30 May 2005.

Article 4

Addressees

This Guideline is addressed to the NCBs of participating Member States.

Done at Frankfurt am Main, 3 February 2005.

For the Governing Council of the ECB

The President of the ECB

Jean-Claude TRICHET

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ANNEX

‘ANNEX I

THE IMPLEMENTATION OF MONETARY POLICY IN THE EURO AREA

General documentation on Eurosystem monetary policy instruments and procedures

February 2005

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CONTENTS

Introduction

CHAPTER 1

1.

1.1.

1.2.

1.3.

Overview of the monetary policy framework

The European System of Central Banks

Objectives of the Eurosystem

Eurosystem monetary policy instruments

1.3.1. Open market operations

1.3.2. Standing facilities

1.3.3. Minimum reserves

1.4.

1.5.

Counterparties

Underlying assets

1.6. Modifications to the monetary policy framework

CHAPTER 2

2.

2.1.

2.2.

2.3.

2.4.

Eligible counterparties

General eligibility criteria

Selection of counterparties for quick tenders and bilateral operations

Sanctions in the event of non-compliance with counterparty obligations

Suspension or exclusion on grounds of prudence

CHAPTER 3

3.

Open market operations

3.1.

Reverse transactions

3.1.1. General considerations

3.1.2. Main refinancing operations

3.1.3. Longer-term refinancing operations

3.1.4. Fine-tuning reverse operations

3.1.5. Structural reverse operations

3.2.

3.3.

3.4.

3.5.

Outright transactions

Issuance of ECB debt certificates

Foreign exchange swaps

Collection of fixed-term deposits

CHAPTER 4

4.

4.1.

4.2.

Standing facilities

The marginal lending facility

The deposit facility

CHAPTER 5

5.

Procedures

5.1.

Tender procedures

5.1.1. General considerations

5.1.2. Tender operations calendar

5.1.3. Announcement of tender operations

Page

7

8

8

8

8

8

9

9

9

10

10

11

11

11

12

12

13

13

13

13

14

14

15

15

16

17

18

19

19

20

21

21

21

23

23

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5.1.4. Preparation and submission of bids by counterparties

5.1.5. Tender allotment procedures

5.1.6. Announcement of tender results

5.2.

5.3.

Procedures for bilateral operations

Settlement procedures

5.3.1. General considerations

5.3.2. Settlement of open market operations

5.3.3. End-of-day procedures

CHAPTER 6

6.

6.1.

6.2.

6.3.

6.4.

Eligible assets

General considerations

Tier one assets

Tier two assets

Risk control measures

6.4.1. Risk control measures for tier one assets

6.4.2. Risk control measures for tier two assets

6.5.

6.6.

Valuation principles for underlying assets

Cross-border use of eligible assets

6.6.1. Correspondent central banking model

6.6.2. Links between securities settlement systems

CHAPTER 7

7.

7.1.

7.2.

7.3.

Minimum reserves

General considerations

Institutions subject to minimum reserve requirements

Determination of minimum reserves

7.4. Maintenance of reserve holdings

7.5.

7.6.

Reporting, acknowledgement and verification of the reserve base

Non-compliance with minimum reserve obligations

Annexes

Annex 1

Examples of monetary policy operations and procedures

Annex 2

Glossary

Annex 3

Selection of counterparties for foreign exchange intervention operations and foreign exchange
swaps for monetary policy purposes

Annex 4

Reporting framework for the money and banking statistics of the European Central Bank

Annex 5

Eurosystem websites

Annex 6

Procedures and sanctions to be applied in the event of non-compliance with counterparty
obligations

List of boxes, charts and tables

Boxes

1.

2.

3.

4.

Issuance of ECB debt certificates

Foreign exchange swaps

Operational steps in tender procedures

Allotment of fixed rate tenders

Page

24

25

28

29

30

30

30

31

32

32

33

36

38

39

42

44

44

45

46

47

47

47

48

49

51

51

52

63

71

72

81

82

16

17

21

25

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5.

6.

7.

8.

9.

10.

11.

12.

13.

14.

15.

Charts

1.

2.

3.

4.

Tables

1.

2.

3.

4.

Allotment of variable rate tenders in euro

Allotment of variable rate foreign exchange swap tenders

Further steps towards a single list of collateral

Risk control measures

Liquidity categories for tier one assets

Level of valuation haircuts (%) applied to eligible tier one assets in relation to fixed coupon and
zero coupon instruments

Level of valuation haircuts (%) applied to eligible tier one inverse floating rate instruments

Calculation of margin calls

Level of valuation haircuts (%) applied to eligible tier two assets

Reserve base and reserve ratios

Calculation of the remuneration of holdings of required reserves

Normal time frame for the operational steps in standard tenders

Normal time frame for the operational steps in quick tenders

The correspondent central banking model

Links between securities settlement systems

Eurosystem monetary policy operations

Normal trade days for the main and the longer-term refinancing operations

Normal settlement dates for Eurosystem open market operations

Eligible assets for Eurosystem monetary policy operations

Page

26

27

33

38

39

40

40

41

42

49

50

22

22

45

46

10

23

31

36

Abbreviations

correspondent central banking model
Central European Time
credit institutions
central securities depository
delivery-versus-payment
European Community
European Central Bank
European Economic Area
European Economic Community
ECB payment mechanism
European System of Central Banks
European Union
free of payment
floating-rate note
intraday credit
International Securities Identification Number
monetary financial institution
money market fund
money market paper
national central bank
rest of the world
real-time gross settlement
securities settlement system
separate trading of interest and principal
Trans-European Automated Real-time Gross settlement Express Transfer system
undertaking for collective investment in transferable securities

CCBM
C.E.T.
CIs
CSD
DVP
EC
ECB
EEA
EEC
EPM
ESCB
EU
FOP
FRN
IDC
ISIN
MFI
MMF
MMP
NCB
RoW
RTGS
SSS
Strip
TARGET
UCITS

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Introduction

This document presents the operational framework chosen by the Eurosystem (1) for the single monetary policy in the
euro area. The document, which forms part of the Eurosystem's legal framework for monetary policy instruments and
procedures, is intended to serve as the “General Documentation” on the monetary policy instruments and procedures of
the Eurosystem, and is aimed, in particular, at providing counterparties with the information they need in relation to the
Eurosystem's monetary policy framework.

The General Documentation in itself neither confers rights nor imposes obligations on counterparties. The legal
relationship between the Eurosystem and its counterparties is established in appropriate contractual or regulatory
arrangements.

This document is divided into seven chapters. Chapter 1 gives an overview of the operational framework for the
monetary policy of the Eurosystem. In Chapter 2, eligibility criteria for counterparties taking part in Eurosystem monetary
policy operations are specified. Chapter 3 describes open market operations, while Chapter 4 presents the standing
facilities available to counterparties. Chapter 5 specifies procedures applied in the execution of monetary policy
operations.
the eligibility criteria for underlying assets in monetary policy operations are defined.
Chapter 7 presents the Eurosystem's minimum reserve system.

In Chapter 6,

The annexes contain examples of monetary policy operations, a glossary, criteria for the selection of counterparties for
Eurosystem foreign exchange intervention operations, a presentation of the reporting framework for the money and
banking statistics of the European Central Bank, a list of the Eurosystem websites and a description of the procedures and
sanctions to be applied in the event of non-compliance with counterparty obligations.

(1)

The Governing Council of the European Central Bank has agreed to use the term “Eurosystem” to denote those components of the
European System of Central Banks that carry out its basic tasks, i.e. the European Central Bank and the national central banks of
those Member States which have adopted the single currency in accordance with the Treaty establishing the European Community.

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CHAPTER 1

1.

OVERVIEW OF THE MONETARY POLICY FRAMEWORK

1.1.

The European System of Central Banks

The European System of Central Banks (ESCB) consists of the European Central Bank (ECB) and the national
central banks of the European Union (EU) Member States (2). The activities of the ESCB are carried out in
accordance with the Treaty establishing the European Community (Treaty) and the Statute of the European
System of Central Banks and of the European Central Bank (Statute of the ESCB). The ESCB is governed by the
decision-making bodies of the ECB. In this respect, the Governing Council of the ECB is responsible for the
formulation of monetary policy, while the Executive Board is empowered to implement monetary policy
according to the decisions made and guidelines laid down by the Governing Council. To the extent deemed
possible and appropriate and with a view to ensuring operational efficiency, the ECB has recourse to the national
central banks (3)
the Eurosystem. The
the operations which form part of
Eurosystem's monetary policy operations are executed under uniform terms and conditions in all Member
States (4).

for carrying out

the tasks of

1.2.

Objectives of the Eurosystem

The primary objective of the Eurosystem is to maintain price stability, as defined in Article 105 of the Treaty.
Without prejudice to the primary objective of price stability, the Eurosystem has to support the general
In pursuing its objectives, the Eurosystem has to act in
economic policies in the European Community.
accordance with the principle of an open market economy with free competition,
favouring an efficient
allocation of resources.

1.3.

Eurosystem monetary policy instruments

In order to achieve its objectives, the Eurosystem has at its disposal a set of monetary policy instruments; the
Eurosystem conducts open market operations, offers standing facilities and requires credit institutions to hold
minimum reserves on accounts with the Eurosystem.

1.3.1. Open market operations

Open market operations play an important role in the monetary policy of the Eurosystem for the purposes of
steering interest rates, managing the liquidity situation in the market and signalling the stance of monetary
policy. Five types of instruments are available to the Eurosystem for the conduct of open market operations. The
most important instrument is the reverse transaction (applicable on the basis of repurchase agreements or
collateralised loans). The Eurosystem may also use outright transactions, the issuance of debt certificates, foreign
exchange swaps and the collection of fixed-term deposits. Open market operations are initiated by the ECB, which also
decides on the instrument to be used and on the terms and conditions for its execution. They can be executed
on the basis of standard tenders, quick tenders or bilateral procedures (5). With regard to their aims, regularity
and procedures, the Eurosystem's open market operations can be divided into the following four categories (see
also Table 1):

— The main refinancing operations are regular liquidity-providing reverse transactions with a weekly frequency
and a maturity of normally one week. These operations are executed by the national central banks on the
basis of standard tenders. The main refinancing operations play a pivotal role in pursuing the purposes of
the Eurosystem's open market operations and provide the bulk of refinancing to the financial sector.

(2)

(3)

(4)

(5)

It should be noted that the national central banks of those Member States which have not adopted the single currency in accordance
with the Treaty establishing the European Community (Treaty) retain their powers in the field of monetary policy according to
national law and are thus not involved in the conduct of the single monetary policy.
Throughout this document, the term “national central banks” refers to the national central banks of the Member States which have
adopted the single currency in accordance with the Treaty.
Throughout this document, the term “Member State” refers to a Member State which has adopted the single currency in accordance
with the Treaty.
The different procedures for the execution of Eurosystem open market operations, i.e. standard tenders, quick tenders and bilateral
procedures, are specified in Chapter 5. For standard tenders, a maximum of 24 hours elapses between the tender announcement and
the certification of the allotment result. All counterparties fulfilling the general eligibility criteria specified in Section 2.1 may
participate in standard tenders. Quick tenders are executed within a time frame of 90 minutes. The Eurosystem may select a limited
number of counterparties to participate in quick tenders. The term “bilateral procedures” refers to any case in which the Eurosystem
conducts a transaction with one or a few counterparties without using tender procedures. Bilateral procedures include operations
executed through stock exchanges or market agents.

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— The longer-term refinancing operations are liquidity-providing reverse transactions with a monthly frequency
and a maturity of normally three months. These operations are aimed at providing counterparties with
additional longer-term refinancing and are executed by the national central banks on the basis of standard
tenders. In these operations, the Eurosystem does not, as a rule, intend to send signals to the market and
therefore normally acts as a rate taker.

— Fine-tuning operations are executed on an ad hoc basis with the aim of managing the liquidity situation in the
market and steering interest rates, in particular in order to smooth the effects on interest rates caused by
unexpected liquidity fluctuations in the market. Fine-tuning operations are primarily executed as reverse
transactions, but can also take the form of outright transactions, foreign exchange swaps and the collection
of fixed-term deposits. The instruments and procedures applied in the conduct of fine-tuning operations are
adapted to the types of transactions and the specific objectives pursued in the operations. Fine-tuning
operations are normally executed by the national central banks through quick tenders or bilateral
procedures. The Governing Council of the ECB can decide whether, under exceptional circumstances, fine-
tuning bilateral operations may be executed by the ECB itself.

— In addition, the Eurosystem may carry out structural operations through the issuance of debt certificates,
reverse transactions and outright transactions. These operations are executed whenever the ECB wishes to
adjust the structural position of the Eurosystem vis-à-vis the financial sector (on a regular or non-regular
basis). Structural operations in the form of reverse transactions and the issuance of debt instruments are
carried out by the national central banks through standard tenders. Structural operations in the form of
outright transactions are executed through bilateral procedures.

1.3.2.

Standing facilities

Standing facilities are aimed at providing and absorbing overnight liquidity, signal the general stance of monetary
policy and bound overnight market interest rates. Two standing facilities are available to eligible counterparties
on their own initiative, subject to their fulfilment of certain operational access conditions (see also Table 1):

— Counterparties can use the marginal lending facility to obtain overnight liquidity from the national central
banks against eligible assets. Under normal circumstances, there are no credit limits or other restrictions on
counterparties' access to the facility apart from the requirement to present sufficient underlying assets. The
interest rate on the marginal lending facility normally provides a ceiling for the overnight market interest
rate.

— Counterparties can use the deposit facility to make overnight deposits with the national central banks. Under
normal circumstances, there are no deposit limits or other restrictions on counterparties' access to the
facility. The interest rate on the deposit facility normally provides a floor for the overnight market interest
rate.

The standing facilities are administered in a decentralised manner by the national central banks.

1.3.3. Minimum reserves

The Eurosystem's minimum reserve system applies to credit institutions in the euro area and primarily pursues
the aims of stabilising money market interest rates and creating (or enlarging) a structural liquidity shortage. The
reserve requirement of each institution is determined in relation to elements of its balance sheet. In order to
pursue the aim of stabilising interest rates, the Eurosystem's minimum reserve system enables institutions to
make use of averaging provisions. Compliance with the reserve requirement is determined on the basis of the
institutions' average daily reserve holdings over the maintenance period.
Institutions' holdings of required
reserves are remunerated at the rate of the Eurosystem's main refinancing operations.

1.4.

Counterparties

The Eurosystem's monetary policy framework is formulated with a view to ensuring the participation of a broad
range of counterparties. Institutions subject to minimum reserve requirements according to Article 19.1 of the
Statute of the ESCB may access the standing facilities and participate in open market operations based on
standard tenders. The Eurosystem may select a limited number of counterparties to participate in fine-tuning
operations. For outright transactions, no restrictions are placed a priori on the range of counterparties. For
foreign exchange swaps conducted for monetary policy purposes, active players in the foreign exchange market
are used. The set of counterparties for these operations is limited to those institutions selected for Eurosystem
foreign exchange intervention operations which are located in the euro area.

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1.5.

Underlying assets

Pursuant to Article 18.1 of the Statute of the ESCB, all Eurosystem credit operations (i.e. liquidity-providing
operations) have to be based on adequate collateral. The Eurosystem accepts a wide range of assets to underlie its
operations. A distinction is made between two categories of eligible assets — “tier one” and “tier two” —
essentially for purposes internal to the Eurosystem. However, this distinction will be phased out gradually over
coming years to leave the Eurosystem collateral framework with a single list of eligible assets. Tier one currently
consists of marketable debt instruments fulfilling uniform euro area-wide eligibility criteria specified by the ECB.
Tier two consists of additional assets, marketable and non-marketable, which are of particular importance for
national financial markets and banking systems and for which eligibility criteria are established by the national
central banks, subject to ECB approval. No distinction is made between the two tiers with regard to the quality
of the assets and their eligibility for the various types of Eurosystem monetary policy operations (except that tier
two assets are normally not used by the Eurosystem in outright transactions). Eligible assets may be used on
a cross-border basis, by means of the correspondent central banking model (CCBM) or through eligible links
between EU securities settlement systems (SSSs), to collateralise all types of Eurosystem credit (6). All assets
eligible for Eurosystem monetary policy operations can also be used as underlying assets for intraday credit.

1.6.

Modifications to the monetary policy framework

The Governing Council of the ECB may, at any time, change the instruments, conditions, criteria and procedures
for the execution of Eurosystem monetary policy operations.

TABLE 1

Eurosystem monetary policy operations

Monetary
policy
operations

Types of transactions

Provision of
liquidity

Absorption of
liquidity

Maturity

Frequency

Procedure

Open market operations

Main refinancing
operations

Reverse
transactions

Reverse
transactions

Longer-term
refinancing
operations

Fine-tuning
operations

—

—

One week

Weekly

Standard tenders

Three months

Monthly

Standard tenders

— Reverse

— Reverse

Non-standardised Non-regular

transactions

— Foreign

exchange
swaps

transactions
— Collection of
fixed-term
deposits
— Foreign

exchange
swaps

— Quick
tenders
— Bilateral

procedures

Outright
purchases

Outright sales

—

Non-regular

Bilateral
procedures

Structural
operations

Reverse
transactions

Issuance of debt
certificates

Standardised/
non-standardised

Regular and non-
regular

Standard tenders

Outright
purchases

Outright sales

—

Non-regular

Bilateral
procedures

Standing facilities

Marginal lending
facility

Reverse
transactions

—

Overnight

Deposit facility —

Deposits

Overnight

Access at the discretion of
counterparties

Access at the discretion of
counterparties

(6)

See Sections 6.6.1. and 6.6.2.

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CHAPTER 2

2.

ELIGIBLE COUNTERPARTIES

2.1.

General eligibility criteria

Counterparties for Eurosystem monetary policy operations must fulfil certain eligibility criteria (7). These criteria
are defined with a view to giving a broad range of institutions access to Eurosystem monetary policy operations,
enhancing equal treatment of institutions across the euro area and ensuring that counterparties fulfil certain
operational and prudential requirements:

— Only institutions subject to the Eurosystem's minimum reserve system according to Article 19.1 of the
Statute of the ESCB are eligible to be counterparties. Institutions which are exempt from their obligations
under the Eurosystem's minimum reserve system (see Section 7.2) are not eligible to be counterparties to
Eurosystem standing facilities and open market operations.

— Counterparties must be financially sound. They should be subject to at least one form of harmonised
EU/EEA supervision by national authorities (8). However, financially sound institutions subject to non-
harmonised national supervision of a comparable standard can also be accepted as counterparties, e.g.
branches established in the euro area of institutions that have their head office outside the European
Economic Area (EEA).

— Counterparties must

fulfil any operational criteria specified in the relevant contractual or regulatory
arrangements applied by the respective national central bank (or the ECB), so as to ensure the efficient
conduct of Eurosystem monetary policy operations.

These general eligibility criteria are uniform throughout the euro area. Institutions fulfilling the general eligibility
criteria may:

— access the Eurosystem's standing facilities; and

— participate in Eurosystem open market operations that are based on standard tenders.

An institution may access the Eurosystem's standing facilities and open market operations based on standard
tenders only through the national central bank of the Member State in which it is established. If an institution
has establishments (its head office or branches) in more than one Member State, each establishment has access to
these operations through the national central bank of the Member State in which it is located, notwithstanding
the fact that the bids of an institution may only be submitted by one establishment (either the head office or
a designated branch) in each Member State.

2.2.

Selection of counterparties for quick tenders and bilateral operations

For outright transactions, no restrictions are placed a priori on the range of counterparties.

For foreign exchange swaps executed for monetary policy purposes, counterparties must be able to conduct
large-volume foreign exchange operations efficiently under all market conditions. The range of counterparties to
foreign exchange swaps corresponds to the counterparties located in the euro area which are selected for
Eurosystem foreign exchange intervention operations. The criteria and procedures applied for the selection of
counterparties to foreign exchange intervention operations are presented in Annex 3.

For other operations based on quick tenders and bilateral procedures (fine-tuning reverse transactions and the
collection of fixed-term deposits), each national central bank selects a set of counterparties from among the
institutions established in its Member State which fulfil the general counterparty eligibility criteria. In this respect,
activity in the money market is the prime selection criterion. Other criteria which might be taken into account
are, for example, the efficiency of the trading desk and the bidding potential.

For outright transactions, no restrictions are placed a priori on the range of counterparties.

(7)
(8) Harmonised supervision of credit institutions is based on 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 (OJ L 126, 26.5.2000, p. 1), as amended.

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In quick tenders and bilateral operations, the national central banks deal exclusively with the counterparties
which are included in their respective set of fine-tuning counterparties. If, for operational reasons, a national
central bank cannot deal
the selection of
counterparties in this Member State will be based on a rotation scheme in order to ensure equitable access.

in each operation with all of

its fine-tuning counterparties,

The Governing Council of the ECB can decide whether, under exceptional circumstances, fine-tuning bilateral
operations may be carried out by the ECB itself. If the ECB were to carry out bilateral operations, the selection of
counterparties would in such cases be made by the ECB according to a rotation scheme among those
counterparties in the euro area which are eligible for quick tenders and bilateral operations in order to ensure
equitable access.

2.3.

Sanctions in the event of non-compliance with counterparty obligations

The ECB shall impose sanctions, in accordance with Council Regulation (EC) No 2532/98 of 23 November 1998
concerning the powers of the European Central Bank to impose sanctions (9), European Central Bank Regulation
(EC) No 2157/1999 of 23 September 1999 on the powers of the European Central Bank to impose sanctions
(ECB/1999/4) (10), Council Regulation (EC) No 2531/98 of 23 November 1998 concerning the application of
minimum reserves by the European Central Bank (11), as amended, and Regulation (EC) No 1745/2003 of the
European Central Bank of 12 September 2003 on the application of minimum reserves (ECB/2003/9) (12), on
institutions which do not comply with obligations arising from ECB Regulations and Decisions relating to the
application of minimum reserves. The relevant sanctions and the procedural rules for their application are
specified in the abovementioned Regulations. In addition, in the case of serious infringements of the minimum
reserve requirements, the Eurosystem may suspend counterparties' participation in open market operations.

In accordance with the provisions of the contractual or regulatory arrangements applied by the respective
national central bank (or by the ECB), the Eurosystem can and will impose financial penalties on counterparties
or suspend counterparties' participation in open market operations if counterparties fail to comply with their
obligations under the contractual or regulatory arrangements applied by the national central banks (or by the
ECB) as set out below.

This relates to cases of infringement of tender rules (if a counterparty is unable to transfer a sufficient amount of
underlying assets to settle the amount of liquidity it has been allotted in a liquidity-providing operation or if it is
unable to deliver a sufficient amount of cash to settle the amount it has been allotted in a liquidity-absorbing
operation), and of bilateral transaction rules (if a counterparty is unable to deliver a sufficient amount of eligible
underlying assets or if it is unable to deliver a sufficient amount of cash to settle the amount agreed in bilateral
transactions).

This also applies to cases of non-compliance by a counterparty with the rules for the use of underlying assets (if
a counterparty is using assets which are or have become ineligible, or which may not be used by the
counterparty, e.g. owing to close links between, or the identity of, issuer/guarantor and counterparty), and to
non-compliance with the rules for end-of-day procedures and access conditions for the marginal lending facility
(if a counterparty which has a negative balance on the settlement account at the end of the day does not fulfil
the access conditions for the marginal lending facility).

In addition, a suspension measure taken vis-à-vis a non-complying counterparty may be applied to branches of
the same institution located in other Member States. Where, as an exceptional measure, this is required on
account of the seriousness of a case of non-compliance, as evidenced by its frequency or duration, for instance,
a counterparty may be suspended from all future monetary policy operations for a certain period of time.

Financial penalties imposed by national central banks in the event of non-compliance in relation to a breach of
the rules concerning tender operations, bilateral transactions, underlying assets, end-of-day procedures or the
access conditions to the marginal lending facility are calculated at a pre-specified penalty rate (as set out in
Annex 6).

2.4.

Suspension or exclusion on grounds of prudence

In accordance with the provisions in the contractual or regulatory arrangements applied by the respective
national central bank (or by the ECB), the Eurosystem may suspend or exclude counterparties' access to
monetary policy instruments on the grounds of prudence.

(9) OJ L 318, 27.11.1998, p. 4.
(10) OJ L 264, 12.10.1999, p. 21.
(11) OJ L 318, 27.11.1998, p. 1.
(12) OJ L 250, 2.10.2003, p. 10.

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In addition, a suspension or exclusion of counterparties may be warranted in some of the cases which fall within
the notion of the “default” of a counterparty as defined in the contractual or regulatory arrangements applied by
the national central banks.

3.

OPEN MARKET OPERATIONS

CHAPTER 3

Open market operations play an important role in the Eurosystem's monetary policy, pursuing the aims of
steering interest rates, managing the liquidity situation in the market and signalling the stance of monetary
policy. With regard to their aims, regularity and procedures, Eurosystem open market operations can be divided
into four categories: main refinancing operations, longer-term refinancing operations, fine-tuning operations and
structural operations. As for the instruments used, reverse transactions are the main open market instrument of
the Eurosystem and can be employed in all four categories of operations, whereas debt certificates may be used
for structural absorption operations. In addition, the Eurosystem has three other instruments available for the
conduct of fine-tuning operations: outright transactions, foreign exchange swaps and the collection of fixed-term
deposits. In the following sections, specific features of the different types of open market instruments used by
the Eurosystem are presented in detail.

3.1.

Reverse transactions

3.1.1.

General considerations

(a) T y p e o f i n s t r u m e n t

Reverse transactions refer to operations where the Eurosystem buys or sells eligible assets under repurchase
agreements or conducts credit operations against eligible assets as collateral. Reverse transactions are used
for main refinancing operations and longer-term refinancing operations. In addition, the Eurosystem can use
reverse transactions for structural and fine-tuning operations.

(b) L e g a l n a t u r e

The national central banks may execute reverse transactions either in the form of repurchase agreements (i.e.
the ownership of the asset is transferred to the creditor, while the parties agree to reverse the transaction
through a re-transfer of the asset to the debtor at a future point in time) or as collateralised loans (i.e. an
enforceable security interest is provided over the assets but, assuming fulfilment of the debt obligation, the
ownership of the asset is retained by the debtor). Further provisions for reverse transactions based on
repurchase agreements are specified in the contractual arrangements applied by the respective national
central bank (or the ECB). Arrangements for reverse transactions based on collateralised loans take account
of the different procedures and formalities required to enable the establishment and subsequent realisation of
a relevant interest in the collateral (e.g. a pledge) which apply in different jurisdictions.

(c)

I n t e r e s t t e r m s

The difference between the purchase price and the repurchase price in a repurchase agreement corresponds
to the interest due on the amount of money borrowed or lent over the maturity of the operation, i.e. the
repurchase price includes the respective interest to be paid. The interest rate on a reverse transaction in the
form of a collateralised loan is determined by applying the specified interest rate on the credit amount over
the maturity of the operation. The interest rate applied to Eurosystem reverse open market operations is
a simple interest rate based on the day-count convention “actual/360”.

3.1.2. Main refinancing operations

The main refinancing operations are the most important open market operations conducted by the Eurosystem,
playing a pivotal role in pursuing the aims of steering interest rates, managing the liquidity situation in the
market and signalling the stance of monetary policy. They also provide the bulk of refinancing to the financial
sector.

The operational features of the main refinancing operations can be summarised as follows:

— they are liquidity-providing operations;

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— they are executed regularly each week (13);

— they normally have a maturity of one week (14);

— they are executed in a decentralised manner by the national central banks;

— they are executed through standard tenders (as specified in Section 5.1);

— all counterparties fulfilling the general eligibility criteria (as specified in Section 2.1) may submit bids for the

main refinancing operations; and

— both tier one and tier two assets (as specified in Chapter 6) are eligible as underlying assets for the main

refinancing operations.

3.1.3.

Longer-term refinancing operations

The Eurosystem also executes regular refinancing operations, normally with a three-month maturity, which are
aimed at providing additional longer-term refinancing to the financial sector. These operations represent only
a small part of the global refinancing volume. In these operations, the Eurosystem does not, as a rule, intend to
send signals to the market and therefore normally acts as a rate taker. Accordingly, longer-term refinancing
operations are usually executed in the form of variable rate tenders and, from time to time, the ECB indicates the
operation volume to be allotted in forthcoming tenders. Under exceptional circumstances, the Eurosystem may
also execute longer-term refinancing operations through fixed rate tenders.

The operational features of the longer-term refinancing operations can be summarised as follows:

— they are liquidity-providing operations;

— they are executed regularly each month (15);

— they normally have a maturity of three months (16);

— they are executed in a decentralised manner by the national central banks;

— they are executed through standard tenders (as specified in Section 5.1);

— all counterparties fulfilling the general eligibility criteria (as specified in Section 2.1) may submit bids for the

longer-term refinancing operations; and

— both tier one and tier two assets (as specified in Chapter 6) are eligible as underlying assets for the longer-

term refinancing operations.

3.1.4.

Fine-tuning reverse operations

The Eurosystem can execute fine-tuning operations in the form of reverse open market transactions. Fine-tuning
operations aim to manage the liquidity situation in the market and to steer interest rates, in particular in order to
smooth the effects on interest rates caused by unexpected liquidity fluctuations in the market. The potential need
for rapid action in the case of unexpected market developments makes it desirable to retain a high degree of
flexibility in the choice of procedures and operational features in the conduct of these operations.

The operational features of the fine-tuning reverse operations can be summarised as follows:

— they can take the form of liquidity-providing or liquidity-absorbing operations;

— their frequency is not standardised;

— their maturity is not standardised;

(13) The main and the longer-term refinancing operations are executed in accordance with the Eurosystem's pre-announced tender
operations calendar (see also Section 5.1.2), which can be found on the ECB's website (www.ecb.int), as well as on the Eurosystem
websites (see Annex 5).

(14) The maturity of the main and the longer-term refinancing operations may occasionally vary depending on, inter alia, bank holidays in

Member States.
(15) See footnote 13.
(16) See footnote 14.

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— liquidity-providing fine-tuning reverse transactions are normally executed through quick tenders, although

the possibility of using bilateral procedures is not excluded (see Chapter 5);

— liquidity-absorbing fine-tuning reverse transactions are executed, as a rule, through bilateral procedures (as

specified in Section 5.2);

— these operations are normally executed in a decentralised manner by the national central banks (the
Governing Council of the ECB can decide whether, under exceptional circumstances, bilateral fine-tuning
reverse operations may be executed by the ECB);

— the Eurosystem may select, according to the criteria specified in Section 2.2, a limited number of

counterparties to participate in fine-tuning reverse operations; and

— both tier one and tier two assets (as specified in Chapter 6) are eligible as underlying assets for fine-tuning

reverse operations.

3.1.5.

Structural reverse operations

The Eurosystem may execute structural operations in the form of reverse open market transactions aimed at
adjusting the structural position of the Eurosystem vis-à-vis the financial sector.

The operational features of these operations can be summarised as follows:

— they are liquidity-providing operations;

— their frequency can be regular or non-regular;

— their maturity is not standardised a priori;

— they are executed through standard tenders (as specified in Section 5.1);

— they are executed in a decentralised manner by the national central banks;

— all counterparties fulfilling the general eligibility criteria (as specified in Section 2.1) may submit bids for

structural reverse operations; and

— both tier one and tier two assets (as specified in Chapter 6) are eligible as underlying assets for structural

reverse operations.

3.2.

Outright transactions

(a) T y p e o f i n s t r u m e n t

Outright open market transactions refer to operations where the Eurosystem buys or sells eligible assets
outright on the market. Such operations are executed only for structural and fine-tuning purposes.

(b) L e g a l n a t u r e

An outright transaction implies a full transfer of ownership from the seller to the buyer with no connected
reverse transfer of ownership. The transactions are executed in accordance with the market conventions for
the debt instrument used in the transaction.

(c) P r i c e t e r m s

In the calculation of prices, the Eurosystem acts in accordance with the most widely accepted market
convention for the debt instruments used in the transaction.

(d) O t h e r o p e r a t i o n a l f e a t u r e s

The operational features of Eurosystem outright transactions can be summarised as follows:

— they can take the form of liquidity-providing (outright purchase) or liquidity-absorbing (outright sale)

operations;

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— their frequency is not standardised;

— they are executed through bilateral procedures (as specified in Section 5.2);

— they are normally executed in a decentralised manner by the national central banks (the Governing
fine-tuning outright

the ECB can decide whether, under exceptional circumstances,

Council of
operations may be executed by the ECB);

— no restrictions are placed a priori on the range of counterparties to outright transactions; and

— only tier one instruments (as specified in Section 6.1) are normally used as underlying assets in outright

transactions.

3.3.

Issuance of ECB debt certificates

(a) T y p e o f i n s t r u m e n t

The ECB may issue debt certificates with the aim of adjusting the structural position of the Eurosystem vis-à-
vis the financial sector so as to create (or enlarge) a liquidity shortage in the market.

(b) L e g a l n a t u r e

The certificates constitute a debt obligation of the ECB vis-à-vis the holder of the certificate. The certificates
are issued and held in book-entry form in securities depositories in the euro area. The ECB does not impose
any restrictions on the transferability of the certificates. Further provisions related to ECB debt certificates
will be contained in the terms and conditions for such certificates.

(c)

I n t e r e s t t e r m s

The certificates are issued at a discount, i.e. they are issued at below the nominal amount and are redeemed
at maturity at the nominal amount. The difference between the issue amount and the redemption amount
equals the interest accrued on the issue amount, at the agreed interest rate, over the maturity of the
certificate. The interest rate applied is a simple interest rate based on the day-count convention “actual/360”.
The calculation of the issue amount is shown in Box 1.

BOX 1

Issuance of ECB debt certificates

PT = N ×

1
1 + r1 × D
36 000

The issue amount is:

where:

N = nominal amount of the debt certificate

rI = interest rate (as a %)

D = maturity of the debt certificate (in days)

PT = issue amount of the debt certificate

(d) O t h e r o p e r a t i o n a l f e a t u r e s

The operational features of the issuance of ECB debt certificates can be summarised as follows:

— the certificates are issued in order to absorb liquidity from the market;

— the certificates can be issued on a regular or non-regular basis;

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— the certificates have a maturity of less than 12 months;

— the certificates are issued through standard tenders (as specified in Section 5.1);

— the certificates are tendered and settled in a decentralised manner by the national central banks; and

— all counterparties fulfilling the general eligibility criteria (as specified in Section 2.1) may submit bids for

the subscription of ECB debt certificates.

3.4.

Foreign exchange swaps

(a) T y p e o f i n s t r u m e n t

Foreign exchange swaps executed for monetary policy purposes consist of simultaneous spot and forward
transactions in euro against a foreign currency. They are used for fine-tuning purposes, mainly with the aim
of managing the liquidity situation in the market and steering interest rates.

(b) L e g a l n a t u r e

Foreign exchange swaps executed for monetary policy purposes refer to operations where the Eurosystem
buys (or sells) euro spot against a foreign currency and, at the same time, sells (or buys) it back in a forward
transaction at a specified repurchase date. Further provisions for foreign exchange swaps are specified in the
contractual arrangement applied by the respective national central bank (or the ECB).

(c) C u r r e n c y a n d e x c h a n g e r a t e t e r m s

As a rule, the Eurosystem operates only in widely traded currencies and in accordance with standard market
practice. In each foreign exchange swap operation, the Eurosystem and the counterparties agree on the swap
points for the transaction. The swap points are the difference between the exchange rate of the forward
transaction and the exchange rate of the spot transaction. The swap points of the euro vis-à-vis the foreign
currency are quoted according to general market conventions. The exchange rate terms of foreign exchange
swaps are specified in Box 2.

BOX 2

Foreign exchange swaps

S

= spot (on the transaction date of the foreign exchange swap) of the exchange rate between

the euro (EUR) and a foreign currency ABC

S =

x × ABC
1 × EUR

FM = forward exchange rate between the euro and a foreign currency ABC on the repurchase

date of the swap (M)

FM =

y × ABC
1 × EUR

Δ

M = forward points between the euro and ABC on the repurchase date of the swap (M)

ΔM = FM (cid:1) S

N(.) = spot amount of currency; N(.)M is the forward amount of currency:

NðABCÞ = NðEURÞ × S or NðEURÞ = NðABCÞ

S

NðABCÞM = NðEURÞM × FM or NðEURÞM =

NðABCÞM
FM

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(d) O t h e r o p e r a t i o n a l f e a t u r e s

The operational features of foreign exchange swaps can be summarised as follows:

— they can take the form of liquidity-providing or liquidity-absorbing operations;

— their frequency is not standardised;

— their maturity is not standardised;

— they are executed through quick tenders or bilateral procedures (see Chapter 5);

— they are normally executed in a decentralised manner by the national central banks (the Governing
Council of the ECB can decide whether, under exceptional circumstances, bilateral foreign exchange
swaps may be executed by the ECB); and

— the Eurosystem may select, according to the criteria specified in Section 2.2 and Annex 3, a limited

number of counterparties to participate in foreign exchange swaps.

3.5.

Collection of fixed-term deposits

(a) T y p e o f i n s t r u m e n t

The Eurosystem may invite counterparties to place remunerated fixed-term deposits with the national central
bank in the Member State in which the counterparty is established. The collection of fixed-term deposits is
envisaged only for fine-tuning purposes in order to absorb liquidity in the market.

(b) L e g a l n a t u r e

The deposits accepted from counterparties are for a fixed term and with a fixed rate of interest. No collateral
is given by the national central banks in exchange for the deposits.

(c)

I n t e r e s t t e r m s

The interest rate applied to the deposit is a simple interest rate based on the day-count convention
“actual/360”. Interest is paid at maturity of the deposit.

(d) O t h e r o p e r a t i o n a l f e a t u r e s

The operational features of the collection of fixed-term deposits can be summarised as follows:

— the deposits are collected in order to absorb liquidity;

— the frequency with which deposits are collected is not standardised;

— the maturity of the deposits is not standardised;

— the collection of deposits is normally executed through quick tenders, although the possibility of using

bilateral procedures is not excluded (see Chapter 5);

— the collection of deposits is normally executed in a decentralised manner by the national central banks
(the Governing Council of the ECB can decide whether, under exceptional circumstances, the bilateral
collection of fixed-term deposits (17) may be executed by the ECB); and

— the Eurosystem may select, according to the criteria specified in Section 2.2, a limited number of

counterparties for the collection of fixed-term deposits.

(17) Fixed-term deposits are held on accounts with the national central banks; this would be the case even if such operations were to be

executed in a centralised manner by the ECB.

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CHAPTER 4

4.

STANDING FACILITIES

4.1.

The marginal lending facility

(a) T y p e o f i n s t r u m e n t

lending facility to obtain overnight liquidity from national central
Counterparties may use the marginal
banks at a pre-specified interest rate against eligible assets (as set out in Chapter 6). The facility is intended
to satisfy counterparties' temporary liquidity needs. Under normal circumstances, the interest rate on the
facility provides a ceiling for the overnight market interest rate. The terms and conditions of the facility are
identical throughout the euro area.

(b) L e g a l n a t u r e

The national central banks may provide liquidity under the marginal lending facility either in the form of
overnight repurchase agreements (i.e. the ownership of the asset is transferred to the creditor, while the
parties agree to reverse the transaction through a re-transfer of the asset to the debtor on the next business
day) or as overnight collateralised loans (i.e. an enforceable security interest is provided over the assets but,
assuming fulfilment of the debt obligation, ownership of the asset is retained by the debtor). Further
provisions for repurchase agreements are specified in the contractual arrangements applied by the respective
national central bank. Arrangements for providing the liquidity in the form of collateralised loans take
account of the different procedures and formalities required to enable the establishment and subsequent
realisation of a relevant interest in the collateral (a pledge) which apply in different jurisdictions.

(c) A c c e s s c o n d i t i o n s

Institutions fulfilling the general counterparty eligibility criteria specified in Section 2.1 may access the
marginal lending facility. Access to the marginal lending facility is granted through the national central bank
in the Member State in which the institution is established. Access to the marginal lending facility is granted
only on days when the relevant national real-time gross settlement (RTGS) system and the relevant SSS(s)
are operational.

At the end of each business day, counterparties' intraday debit positions on their settlement account with
the national central banks are automatically considered to be a request for recourse to the marginal lending
facility. The procedures for end-of-day access to the marginal lending facility are specified in Section 5.3.3.

A counterparty may also be granted access to the marginal lending facility by sending a request to the
national central bank in the Member State in which the counterparty is established. For the national central
bank to process the request on the same day, the request must be received by the national central bank at
(19). As a general rule, the closing time
the latest 30 minutes after the actual closing time of TARGET (18),
for the TARGET system is 6 p.m. ECB time (C.E.T.). The deadline for requesting access to the marginal
lending facility is postponed by an additional 30 minutes on the last Eurosystem business day of a reserve
maintenance period. In the request, the amount of credit must be stated and, if underlying assets for the
transaction have not already been pre-deposited with the national central bank, the underlying assets to be
delivered for the transaction must be specified.

Apart from the requirement to present sufficient underlying eligible assets, there is no limit to the amount
of funds that can be advanced under the marginal lending facility.

(18)

In some Member States, the national central bank (or some of its branches) may not be open for the purpose of conducting monetary
policy operations on certain Eurosystem business days owing to national or regional bank holidays. In such cases, the relevant
national central bank is responsible for informing the counterparties in advance of the arrangements to be made for access to the
marginal lending facility in relation to the bank holiday.

(19) TARGET closing days are announced on the ECB's website (www.ecb.int), as well as on the Eurosystem websites (see Annex 5).

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(d) M a t u r i t y a n d i n t e r e s t t e r m s

The maturity of credit extended under the facility is overnight. For counterparties participating directly in
TARGET, the credit is repaid on the next day on which the relevant national RTGS system and the relevant
SSS(s) are operational, at the time at which those systems open.

The interest rate is announced in advance by the Eurosystem and is calculated as a simple interest rate based
on the day-count convention “actual/360”. The ECB may change the interest rate at any time, effective, at
the earliest, from the following Eurosystem business day (20). Interest under the facility is payable with the
repayment of the credit.

(e) S u s p e n s i o n o f t h e f a c i l i t y

Access to the facility is granted only in accordance with the objectives and general monetary policy
considerations of the ECB. The ECB may adapt the conditions of the facility or suspend it at any time

4.2.

The deposit facility

(a) T y p e o f i n s t r u m e n t

Counterparties can use the deposit facility to make overnight deposits with national central banks. The
deposits are remunerated at a pre-specified interest rate. Under normal circumstances, the interest rate on
the facility provides a floor for the overnight market interest rate. The terms and conditions of the deposit
facility are identical throughout the euro area (21).

(b) L e g a l n a t u r e

The overnight deposits accepted from counterparties are remunerated at a fixed rate of interest. No collateral
is given to the counterparty in exchange for the deposits.

(c) A c c e s s c o n d i t i o n s (22)

Institutions fulfilling the general counterparty eligibility criteria specified in Section 2.1 may access the
deposit facility. Access to the deposit facility is granted through the national central bank in the Member
State in which the institution is established. Access to the deposit facility is granted only on days when the
relevant national RTGS system is open.

To be granted access to the deposit facility, the counterparty must send a request to the national central
bank in the Member State in which the counterparty is established. For the national central bank to process
the request on the same day, the request must be received by the national central bank at the latest
30 minutes after the actual closing time of TARGET, which is, as a general rule, 6 p.m. ECB time
(C.E.T.) (23),
(24). The deadline for requesting access to the deposit facility is postponed by an additional
30 minutes on the last Eurosystem business day of a reserve maintenance period. In the request, the amount
to be deposited under the facility is to be stated.

There is no limit to the amount a counterparty may deposit under the facility.

(d) M a t u r i t y a n d i n t e r e s t t e r m s

The maturity of deposits under the facility is overnight. For counterparties participating directly in TARGET,
deposits held under the facility mature on the next day on which the relevant national RTGS system is
operational, at the time at which this system opens.

(20) Throughout this document, the term “Eurosystem business day” refers to any day on which the ECB and at least one national central

bank are open for the purpose of conducting Eurosystem monetary policy operations.

(21) Operational differences resulting from the existence of different account structures in the national central banks may exist across euro

area countries.

(22) Owing to the existence of different account structures across the national central banks, the ECB may allow national central banks to
apply access conditions which are slightly different from those referred to here. The national central banks will provide information
on any such deviations from the access conditions described in this document.
In some Member States, the national central bank (or some of its branches) may not be open for the purpose of conducting
Eurosystem monetary policy operations on certain Eurosystem business days owing to national or regional bank holidays. In such
cases, the relevant national central bank is responsible for informing the counterparties in advance of the arrangements to be made
for access to the deposit facility in relation to the bank holiday.

(23)

(24) TARGET closing days are announced on the ECB's website (www.ecb.int), as well as on the Eurosystem websites (see Annex 5).

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The interest rate is announced in advance by the Eurosystem and is calculated as a simple interest rate based
on the day-count convention “actual/360”. The ECB may change the interest rate at any time, effective, at
the earliest, from the following Eurosystem business day. Interest on the deposits is payable on maturity of
the deposit.

(e) S u s p e n s i o n o f t h e f a c i l i t y

Access to the facility is granted only in accordance with the objectives and general monetary policy
considerations of the ECB. The ECB may adapt the conditions of the facility or suspend it at any time.

CHAPTER 5

5.

PROCEDURES

5.1.

Tender procedures

5.1.1.

General considerations

Eurosystem open market operations are normally executed in the form of tender procedures. The Eurosystem's
tender procedures are performed in six operational steps, as specified in Box 3.

The Eurosystem distinguishes between two different types of tender procedures: standard tenders and quick
tenders. The procedures for standard and quick tenders are identical except for the time frame and the range of
counterparties.

BOX 3

Operational steps in tender procedures

Step 1

Tender announcement

(a) Announcement by the ECB through public wire services

(b) Announcement by the national central banks through national wire services and

directly to individual counterparties (if deemed necessary)

Step 2

Counterparties' preparation and submission of bids

Step 3

Compilation of bids by the Eurosystem

Step 4

Tender allotment and announcement of tender results

(a) ECB allotment decision

(b) Announcement of the allotment result

Step 5

Certification of individual allotment results

Step 6

Settlement of the transactions (see Section 5.3)

(a) S t a n d a r d t e n d e r s

For standard tenders, a maximum of 24 hours elapses from the announcement of the tender to the
certification of the allotment result (where the time between the submission deadline and the announcement
of the allotment result is approximately two hours). Chart 1 gives an overview of the normal time frame for
the operational steps for standard tenders. The ECB may decide to adjust the time frame in individual
operations, if deemed appropriate.

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The main refinancing operations, the longer-term refinancing operations and structural operations (with the
exception of outright transactions) are always executed in the form of standard tenders. Counterparties
fulfilling the general eligibility criteria specified in Section 2.1 may participate in standard tenders.

CHART 1

Normal time frame for the operational steps in standard tenders

Notes: Times are given in ECB time (C.E.T.) and the figures refer to the operational steps defined in Box 3.

(b) Q u i c k t e n d e r s

Quick tenders are normally executed within 90 minutes of
the tender, with
certification taking place immediately after the announcement of the allotment result. The normal time
frame for the operational steps for quick tenders is specified in Chart 2. The ECB may decide to adjust the
time frame in individual operations, if deemed appropriate. Quick tenders are only used for the execution of
fine-tuning operations. The Eurosystem may select, according to the criteria and procedures specified in
Section 2.2, a limited number of counterparties to participate in quick tenders.

the announcement of

CHART 2

Normal time frame for the operational steps in quick tenders

Note: The figures refer to the operational steps defined in Box 3.

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(c) F i x e d r a t e a n d v a r i a b l e r a t e t e n d e r s

The Eurosystem has the option of conducting either fixed rate (volume) or variable rate (interest) tenders. In
a fixed rate tender, the ECB specifies the interest rate in advance and participating counterparties bid the
amount of money they want to transact at the fixed interest rate (25). In a variable rate tender, counterparties
bid the amounts of money and the interest rates at which they want to enter into transactions with the
national central banks (26).

5.1.2.

Tender operations calendar

(a) M a i n a n d l o n g e r - t e r m r e f i n a n c i n g o p e r a t i o n s

The main and the longer-term refinancing operations are executed according to an indicative calendar
published by the Eurosystem (27). The calendar is published at least three months before the start of the year
for which it is valid. The normal trade days for the main and the longer-term refinancing operations are
specified in Table 2. The ECB aims to ensure that counterparties in all Member States can participate in the
main and the longer-term refinancing operations. Therefore, when compiling the calendar for these
operations, the ECB makes appropriate adjustments to the normal schedule to take into account bank
holidays in the individual Member States.

Normal trade days for the main and the longer-term refinancing operations

TABLE 2

Type of operation

Normal trade day (T)

Main refinancing operations

Each Tuesday

Longer-term refinancing operations

The last Wednesday of each calendar month (1)

(1) Owing to the Christmas period, the December operation is brought forward, normally by one week, i.e. to the preceding

Wednesday of the month.

(b) S t r u c t u r a l o p e r a t i o n s

Structural operations through standard tenders are not executed according to any pre-specified calendar.
However, they are normally conducted and settled only on days which are NCB business days (28) in all
Member States.

(c) F i n e - t u n i n g o p e r a t i o n s

Fine-tuning operations are not executed according to any pre-specified calendar. The ECB may decide to
conduct fine-tuning operations on any Eurosystem business day. Only national central banks of Member
States in which the trade day, the settlement day and the reimbursement day are NCB business days
participate in such operations.

5.1.3. Announcement of tender operations

Eurosystem standard tenders are publicly announced by means of wire services. In addition, national central
banks may announce the tender operation directly to counterparties without access to wire services. The public
tender announcement message normally contains the following information:

— the reference number of the tender operation;

— the date of the tender operation;

— the type of operation (provision or absorption of liquidity and the type of monetary policy instrument to be

used);

(25)

(26)

In fixed rate foreign exchange swap tenders, the ECB fixes the swap points of the operation and the counterparties offer the amount
of currency kept fixed that they wish to sell (and buy back) or buy (and sell back) at that rate.
In variable rate foreign exchange swap tenders, the counterparties bid the amount of the currency kept fixed and the swap point
quotation at which they wish to enter into the operation.

(27) The calendar for the Eurosystem's tender operations can be found on the ECB's website (www.ecb.int), as well as on the Eurosystem

websites (see Annex 5).

(28) Throughout this document, the term “NCB business day” refers to any day on which the national central bank of a specific Member
State is open for the purpose of conducting Eurosystem monetary policy operations. In some Member States, branches of the national
central bank may be closed on NCB business days owing to local or regional bank holidays. In such cases, the relevant national
central bank is responsible for informing the counterparties in advance of the arrangements to be made for transactions involving
those branches.

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— the maturity of the operation;

— the type of auction (fixed rate or variable rate tender);

— the method of allotment (“Dutch” or “American” auction, as defined in Section 5.1.5);

— the intended operation volume (normally only in the case of longer-term refinancing operations);

— the fixed tender interest rate/price/swap point (in the case of fixed rate tenders);

— the minimum/maximum accepted interest rate/price/swap point (if applicable);

— the start date and maturity date of the operation (if applicable) or the value date and maturity date of the

instrument (in the case of the issuance of debt certificates);

— the currencies involved and the currency, the amount of which is kept fixed (in the case of foreign exchange

swaps);

— the reference spot exchange rate to be used for the calculation of bids (in the case of foreign exchange

swaps);

— the maximum bid limit (if any);

— the minimum individual allotment amount (if any);

— the minimum allotment ratio (if any);

— the time schedule for the submission of bids;

— the denomination of the certificates (in the case of the issuance of debt certificates); and

— the ISIN code of the issue (in the case of the issuance of debt certificates).

With a view to enhancing transparency in its fine-tuning operations, the Eurosystem normally announces quick
tenders publicly in advance. However, under exceptional circumstances, the ECB may decide not to announce
quick tenders publicly in advance. The announcement of quick tenders follows the same procedures as those for
the selected
In a quick tender, regardless of whether it
standard tenders.
counterparties are contacted directly by the national central banks.

is announced publicly or not,

5.1.4.

Preparation and submission of bids by counterparties

Counterparties' bids must be in a form that follows the pro forma example provided by the national central
banks for the relevant operation. The bids must be submitted to the national central bank of a Member State in
which the institution has an establishment (head office or branch). The bids of an institution may only be
submitted by one establishment (either the head office or a designated branch) in each Member State.

In fixed rate tenders, counterparties must state in their bids the amount of money that they are willing to
transact with the national central banks (29).

In variable rate tenders, counterparties may submit bids for up to ten different interest rate/price/swap point
levels. In each bid, they must state the amount of money that they are willing to transact with the national
central banks and the respective interest rate (30),
(31). The interest rates bid must be expressed as multiples of
0,01 percentage point. In the case of a variable rate foreign exchange swap tender, the swap points must be
quoted according to standard market conventions and bids must be expressed as multiples of 0,01 swap point.

(29)

In fixed rate foreign exchange swaps, the amount of the currency kept fixed that the counterparty is willing to transact with the
Eurosystem must be stated.

(30) With regard to the issuance of ECB debt certificates, the ECB may decide that bids are to be expressed in the form of a price rather

(31)

than an interest rate. In such cases, prices must be quoted as a percentage of the nominal amount.
In variable rate foreign exchange swaps, the amount of the currency kept fixed that the counterparty is willing to transact with the
Eurosystem and the respective swap point level must be stated.

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For the main refinancing operations, the minimum bid amount is EUR 1 000 000. Bids exceeding this amount
must be expressed as multiples of EUR 100 000. The same minimum bid and multiple amounts are applied in
fine-tuning and structural operations. The minimum bid amount is applied to each individual interest rate/price/
swap point level.

For the longer-term refinancing operations, each national central bank defines a minimum bid amount in the
range from EUR 10 000 to EUR 1 000 000. Bids exceeding the defined minimum bid amount must be
expressed as multiples of EUR 10 000. The minimum bid amount is applied to each individual interest rate level.

The ECB may impose a maximum bid limit in order to prevent disproportionately large bids. Any such
maximum bid limit is always specified in the public tender announcement message.

Counterparties are expected always to be in a position to cover the amounts allotted to them by a sufficient
amount of eligible underlying assets (32). The contractual or regulatory arrangements applied by the respective
national central bank allow the imposition of penalties if a counterparty is unable to transfer a sufficient amount
of underlying assets or cash to settle the amount it has been allotted in a tender operation.

Bids are revocable up to the tender submission deadline. Bids submitted after the deadline specified in the tender
announcement message are invalid. Respect of the deadline is judged by the national central banks. The national
central banks discard all the bids of a counterparty if the aggregate amount bid exceeds any maximum bid limit
established by the ECB. The national central banks also discard any bid which is below the minimum bid
amount or which is below any minimum or above any maximum accepted interest rate/price/swap point.
Furthermore, the national central banks may discard bids which are incomplete or which do not follow the pro
forma example. If a bid is discarded, the respective national central bank informs the counterparty about its
decision prior to the tender allotment.

5.1.5.

Tender allotment procedures

(a) F i x e d r a t e t e n d e r o p e r a t i o n s

In the allotment of a fixed rate tender, the bids received from counterparties are added together. If the
aggregate amount bid exceeds the total amount of liquidity to be allotted, the submitted bids will be satisfied
pro rata, according to the ratio of the amount to be allotted to the aggregate amount bid (see Box 4). The
amount allotted to each counterparty is rounded to the nearest euro. However, the ECB may decide to allot
a minimum amount/ratio to each bidder in fixed rate tenders.

The percentage of allotment is:

BOX 4

Allotment of fixed rate tenders

all% =

A
Xn

i=1

ai

The amount allotted to the ith counterparty is:

alli = all% × ðaiÞ

where:

A

n

ai

= total amount allotted

= total number of counterparties

= bid amount of the ith counterparty

all% = percentage of allotment

alli = total amount allotted to the ith counterparty

(32) Or to settle in cash in the case of liquidity-absorbing operations.

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(b) V a r i a b l e r a t e t e n d e r s i n e u r o

In the allotment of liquidity-providing variable rate tenders in euro, bids are listed in diminishing order of
offered interest rates. Bids with the highest interest rate levels are satisfied first and subsequently bids with
successively lower interest rates are accepted until the total liquidity to be allotted is exhausted. If, at the
lowest interest rate level accepted (i.e. the marginal interest rate), the aggregate amount bid exceeds the
remaining amount to be allotted, the remaining amount is allocated pro rata among the bids according to
the ratio of the remaining amount to be allotted to the total amount bid at the marginal interest rate (see
Box 5). The amount allotted to each counterparty is rounded to the nearest euro.

BOX 5

Allotment of variable rate tenders in euro

(the example refers to bids quoted in the form of interest rates)

The percentage of allotment at the marginal interest rate is:

Xm(cid:1)1

A (cid:1)

aðrsÞ

s=1
aðrmÞ

all%ðrmÞ =

The allotment to the ith counterparty at the marginal interest rate is:

allðrmÞi = all%ðrmÞ × aðrmÞi

The total amount allotted to the ith counterparty is:

alli =

Xm(cid:1)1

s=1

aðrsÞi + allðrmÞi

where:

A

rs

n

= total amount allotted

= sth interest rate bid by the counterparties

= total number of counterparties

a(rs)i

= amount bid at the sth interest rate (rs) by the ith counterparty

a(rs)

= total amount bid at the sth interest rate (rs)

aðrsÞ =

Xn

i=1

aðrsÞi

rm

= marginal interest rate:

r1 ≥ rs ≥ rm for a liquidity-providing tender

rm ≥ rs ≥ r1 for a liquidity-absorbing tender

rm-1

= interest rate before the marginal

interest rate (last interest rate at which bids are

completely satisfied):

rm(cid:1)1 > rm for a liquidity-providing tender

rm > rm(cid:1)1 for a liquidity-absorbing tender

all%(rm) = percentage of allotment at the marginal interest rate

all%(rs)i = allotment to the ith counterparty at the sth interest rate

alli

= total amount allotted to the ith counterparty

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In the allotment of liquidity-absorbing variable rate tenders (which may be used for the issuance of debt
certificates and the collection of fixed-term deposits), bids are listed in increasing order of offered interest
rates (or diminishing order of offered prices). Bids with the lowest interest rate (highest price) levels are
satisfied first and subsequently bids with successively higher interest rates (lower price bids) are accepted
until the total
liquidity to be absorbed is exhausted. If, at the highest interest rate (lowest price) level
accepted (i.e. the marginal interest rate/price), the aggregate bid amount exceeds the remaining amount to be
allotted, the remaining amount is allocated pro rata among the bids according to the ratio of the remaining
amount to be allotted to the total bid amount at the marginal
interest rate/price (see Box 5). For the
issuance of debt certificates, the amount allotted to each counterparty is rounded to the nearest multiple of
the denomination of the debt certificates. For other liquidity-absorbing operations, the amount allotted to
each counterparty is rounded to the nearest euro.

The ECB may decide to allot a minimum amount to each successful bidder in variable rate tenders.

(c) V a r i a b l e r a t e f o r e i g n e x c h a n g e s w a p t e n d e r s

In the allotment of liquidity-providing variable rate foreign exchange swap tenders, bids are listed in
increasing order of swap point quotations (33). The bids with the lowest swap point quotations are satisfied
first and subsequently successively higher swap point quotations are accepted until the total amount of the
fixed currency to be allotted is exhausted. If, at the highest swap point quotation accepted (i.e. the marginal
swap point quotation),
the
remaining amount is allocated pro rata among the bids according to the ratio of the remaining amount to
be allotted to the total amount bid at the marginal swap point quotation (see Box 6). The amount allotted
to each counterparty is rounded to the nearest euro.

the aggregate amount bid exceeds the remaining amount

to be allotted,

BOX 6

Allotment of variable rate foreign exchange swap tenders

The percentage of allotment at the marginal swap point quotation is:

Xm(cid:1)1

aðΔsÞ

A (cid:1)

all%ðΔmÞ =

s=1
aðΔmÞ

The allotment to the ith counterparty at the marginal swap point quotation is:

allðΔmÞi = all%ðΔmÞ × aðΔmÞi

The total amount allotted to the ith counterparty is:

alli =

Xm(cid:1)1

s=1

aðΔsÞi + allðΔmÞi

where:

A

Δ

s

n

= total amount allotted

= sth swap point quotation bid by the counterparties

= total number of counterparties

a(Δ

s)i

= amount bid at the sth swap point quotation (Δ

s) by the ith counterparty

(33) Swap point quotations are listed in increasing order, taking into account the sign of the quotation, which depends on the sign of the
interest rate differential between the foreign currency and the euro. If, for the maturity of the swap, the foreign currency interest rate
is higher than the corresponding interest rate for the euro, the swap point quotation is positive (i.e. the euro is quoted at a premium
to the foreign currency). Conversely, if the foreign currency interest rate is lower than the corresponding interest rate for the euro, the
swap point quotation is negative (i.e. the euro is quoted at a discount to the foreign currency).

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a(Δ

s)

= total amount bid at the sth swap point quotation (Δ

s)

aðΔsÞ =

Xn

i=1

aðΔsÞi

Δ

m

= marginal swap point quotation:

Δm ≥ Δs ≥ Δ1 for a liquidity-providing foreign exchange swap

Δ1 ≥ Δs ≥ Δm for a liquidity-absorbing foreign exchange swap

Δ

m-1

= swap point quotation before the marginal swap point quotation (last swap point

quotation at which bids are completely satisfied):

Δm > Δm(cid:1)1 for a liquidity-providing foreign exchange swap

Δm(cid:1)1 > Δm for a liquidity-absorbing foreign exchange swap

all%(Δ

m) = percentage of allotment at the marginal swap point quotation

all(Δ

alli

s)i = allotment to the ith counterparty at the sth swap point quotation

= total amount allotted to the ith counterparty

In the allotment of liquidity-absorbing variable rate foreign exchange swap tenders, bids are listed in
diminishing order of offered swap point quotations. The bids with the highest swap point quotations are
satisfied first and subsequently successively lower swap point quotations are accepted until the total amount
of the fixed currency to be absorbed is exhausted. If, at the lowest swap point quotation accepted (i.e. the
marginal swap point quotation), the aggregate amount bid exceeds the remaining amount to be allotted, the
remaining amount is allocated pro rata among the bids according to the ratio of the remaining amount to
be allotted to the total amount bid at the marginal swap point quotation (see Box 6). The amount allotted
to each counterparty is rounded to the nearest euro.

(d) T y p e o f a u c t i o n

For variable rate tenders, the Eurosystem may apply either single rate or multiple rate auction procedures. In
a single rate auction (Dutch auction), the allotment interest rate/price/swap point applied for all satisfied bids
is equal to the marginal interest rate/price/swap point (i.e. that at which the total allotment is exhausted). In
a multiple rate auction (American auction), the allotment interest rate/price/swap point is equal to the
interest rate/price/swap point offered for each individual bid.

5.1.6. Announcement of tender results

The results of standard and quick tenders are announced publicly by means of wire services. In addition, national
central banks may announce the allotment result directly to counterparties without access to wire services. The
public tender result message normally contains the following information:

— the reference number of the tender operation;

— the date of the tender operation;

— the type of operation;

— the maturity of the operation;

— the total amount bid by Eurosystem counterparties;

— the number of bidders;

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— the currencies involved (in the case of foreign exchange swaps);

— the total amount allotted;

— the percentage of allotment (in the case of fixed rate tenders);

— the spot exchange rate (in the case of foreign exchange swaps);

— the marginal interest rate/price/swap point accepted and the percentage of allotment at the marginal interest

rate/price/swap point (in the case of variable rate tenders);

— the minimum bid rate, maximum bid rate and weighted average allotment rate (in the case of multiple rate

auctions);

— the start date and maturity date of the operation (if applicable) or the value date and maturity date of the

instrument (in the case of the issuance of debt certificates);

— the minimum individual allotment amount (if any);

— the minimum allotment ratio (if any);

— the denomination of the certificates (in the case of the issuance of debt certificates); and

— the ISIN code of the issue (in the case of the issuance of debt certificates).

The national central banks will directly certify the individual allotment result to successful counterparties.

5.2.

Procedures for bilateral operations

(a) G e n e r a l c o n s i d e r a t i o n s

The national central banks may execute operations on the basis of bilateral procedures (34). These procedures
may be used for fine-tuning open market operations and structural outright operations. They are defined in
a broad sense as any procedures where the Eurosystem conducts a transaction with one or a few
counterparties without a tender.
types of bilateral procedures can be
distinguished: operations where counterparties are contacted directly by the Eurosystem, and operations
executed through stock exchanges and market agents.

In this respect,

two different

(b) D i r e c t c o n t a c t w i t h c o u n t e r p a r t i e s

In this procedure, the national central banks directly contact one or a few domestic counterparties, which
are selected according to the criteria specified in Section 2.2. According to the precise instructions given by
the ECB, the national central banks decide whether to enter into a deal with the counterparties. The
transactions are settled through the national central banks.

If the Governing Council of
the ECB were to decide that, under exceptional circumstances, bilateral
operations could also be executed by the ECB itself (or by one or a few national central banks acting as the
operating arm of the ECB), the procedures for such operations would be adapted accordingly. In this case,
the ECB (or the national central bank(s) acting as the operating arm of the ECB) would directly contact one
or a few counterparties in the euro area, selected according to the criteria specified in Section 2.2. The ECB
(or the national central bank(s) acting as the operating arm of the ECB) would decide whether to enter into
a deal with the counterparties. The transactions would nevertheless be settled in a decentralised manner
through the national central banks.

(34) The Governing Council of the ECB can decide whether, under exceptional circumstances, fine-tuning bilateral operations may also be

executed by the ECB itself.

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Bilateral operations through direct contact with counterparties can be applied for reverse transactions,
outright transactions, foreign exchange swaps and the collection of fixed-term deposits.

(c) O p e r a t i o n s e x e c u t e d t h r o u g h s t o c k e x c h a n g e s a n d m a r k e t a g e n t s

The national central banks can execute outright transactions through stock exchanges and market agents.
For these operations, the range of counterparties is not restricted a priori and the procedures are adapted to
the market conventions for the debt instruments transacted. The Governing Council of the ECB will decide
whether, under exceptional circumstances, the ECB itself (or one or a few national central banks acting as
the operating arm of the ECB) may execute fine-tuning outright operations through stock exchanges and
market agents.

(d) A n n o u n c e m e n t o f b i l a t e r a l o p e r a t i o n s

Bilateral operations are normally not announced publicly in advance. In addition, the ECB may decide not to
announce the results of bilateral operations publicly.

(e) O p e r a t i n g d a y s

The ECB may decide to conduct fine-tuning bilateral operations on any Eurosystem business day. Only
national central banks of Member States where the trade day, the settlement day and the reimbursement day
are NCB business days participate in such operations.

Outright bilateral operations for structural purposes are normally only conducted and settled on days which
are NCB business days in all Member States.

5.3.

Settlement procedures

5.3.1.

General considerations

Money transactions relating to the use of Eurosystem standing facilities or to participation in open market
operations are settled on the counterparties' accounts with the national central banks (or on the accounts of
settlement banks participating in the TARGET system). Money transactions are settled only after (or at the
moment of) the final transfer of the assets underlying the operation. This implies that underlying assets need
either to have been pre-deposited in a safe custody account at the national central banks or to be settled with
said national central banks on an intraday delivery-versus-payment basis. The transfer of underlying assets is
executed via the counterparties' securities settlement accounts with SSSs fulfilling the ECB's minimum
standards (35). Counterparties without a safe custody account with a national central bank or a securities
settlement account with an SSS fulfilling the ECB's minimum standards may settle the transactions of underlying
assets through the securities settlement account or the safe custody account of a correspondent credit institution.

Further provisions related to the settlement procedures are defined in the contractual arrangements applied by
the national central banks (or the ECB) for the specific monetary policy instruments. The settlement procedures
may differ slightly between national central banks owing to differences in national law and operational practices.

5.3.2.

Settlement of open market operations

Open market operations based on standard tenders (i.e. main refinancing operations, longer-term refinancing
operations and structural operations) are normally settled on the first day following the trade day on which all
relevant national RTGS systems and all relevant SSSs are open. As a matter of principle, the Eurosystem aims to

(35) The description of the standards for the use of eligible SSSs in the euro area and an updated list of the eligible links between these

systems can be found on the ECB's website (www.ecb.int).

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settle the transactions related to its open market operations at the same time in all Member States with all
counterparties that have provided sufficient underlying assets. However, owing to operational constraints and the
technical features of SSSs, the timing within the day of the settlement of open market operations may differ
across the euro area. The time of settlement of the main and the longer-term refinancing operations normally
coincides with the time of reimbursement of a previous operation of corresponding maturity.

The Eurosystem aims to settle open market operations based on quick tenders and bilateral procedures on the
trade day. However, the Eurosystem may, for operational reasons, occasionally apply other settlement dates for
these operations,
in particular for outright transactions (for fine-tuning as well as structural purposes) and
foreign exchange swaps (see Table 3).

TABLE 3

Normal settlement dates for Eurosystem open market operations (1)

Monetary policy instrument

Settlement date for operations
based on standard tenders

Reverse transactions

Outright transactions

Issuance of debt certificates

Foreign exchange swaps

Collection of fixed-term deposits

T+1 (2)

—

T+1

—

—

Settlement date for operations
based on quick tenders or
bilateral procedures

T

According to market convention for
the underlying assets

—

T, T+1 or T+2

T

(1) T refers to the trade day. The settlement date refers to Eurosystem business days.
(2) If the normal settlement date for the main or the longer-term refinancing operations coincides with a bank holiday, the ECB
may decide to apply a different settlement date, with the option of same-day settlement. The settlement dates for the main
and the longer-term refinancing operations are specified in advance in the Eurosystem's tender operations calendar (see
Section 5.1.2).

5.3.3.

End-of-day procedures

The end-of-day procedures are specified in documentation related to the national RTGS systems and the
TARGET system. As a general rule, the closing time for the TARGET system is 6 p.m. ECB time (C.E.T.). No
further payment orders are accepted for processing in the national RTGS systems after the closing time, although
remaining payment orders accepted before the closing time are still processed. Counterparties' requests for access
to the marginal lending facility or to the deposit facility must be submitted to the respective national central
bank at the latest 30 minutes after the actual closing time of the TARGET system (36).

Any negative balances on the settlement accounts (in the national RTGS systems) of eligible counterparties
remaining after the finalisation of the end-of-day control procedures are automatically considered to be a request
for recourse to the marginal lending facility (see Section 4.1).

(36) The deadline for requesting access to the Eurosystem's standing facilities is postponed by an additional 30 minutes on the last

Eurosystem business day of a minimum reserve maintenance period.

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CHAPTER 6

6.

ELIGIBLE ASSETS

6.1.

General considerations

Article 18.1 of the Statute of the ESCB allows the ECB and the national central banks to transact in financial
markets by buying and selling underlying assets outright or under repurchase agreements and requires all
Eurosystem credit operations to be based on adequate collateral. Consequently, all Eurosystem liquidity-providing
operations are based on underlying assets provided by the counterparties either in the form of the transfer of
ownership of assets (in the case of outright transactions or repurchase agreements) or in the form of a pledge
granted over relevant assets (in the case of collateralised loans) (37).

With the aims of protecting the Eurosystem from incurring losses in its monetary policy operations, ensuring the
equal treatment of counterparties and enhancing operational efficiency, underlying assets have to fulfil certain
criteria in order to be eligible for Eurosystem monetary policy operations.

At the beginning of Economic and Monetary Union, due attention had to be paid to existing differences in
financial structure across Member States. A distinction was therefore made, essentially for purposes internal to
the Eurosystem, between two categories of assets eligible for Eurosystem monetary policy operations. These two
categories are referred to as “tier one” and “tier two” respectively:

— tier one consists of marketable debt instruments fulfilling uniform euro area-wide eligibility criteria specified

by the ECB; and

— tier two consists of additional assets, marketable and non-marketable, which are of particular importance to
national financial markets and banking systems and for which eligibility criteria are established by the
national central banks, subject to the minimum eligibility criteria established by the ECB. The specific
eligibility criteria for tier two applied by the respective national central banks are subject to approval by the
ECB.

No distinction is made between the two tiers with regard to the quality of the assets and their eligibility for the
various types of Eurosystem monetary policy operations (except for the fact that tier two assets are not normally
used by the Eurosystem in outright transactions). The assets eligible for Eurosystem monetary policy operations
can also be used as underlying assets for intraday credit.

Tier one and tier two assets are subject to the risk control measures set out in Section 6.4. Eurosystem
counterparties may use eligible assets on a cross-border basis, i.e. they may obtain funds from the national
central bank of the Member State in which they are established by making use of assets located in another
Member State (see Section 6.6).

The Eurosystem is currently working towards introducing a single list of collateral eligible for Eurosystem credit
operations (hereinafter referred to as the “single list”). The single list will be introduced gradually and will
eventually replace the current two-tier system of eligible collateral. Most categories of assets currently eligible as
tier two assets will be eligible in the single list. The few tier two assets that do not qualify under the eligibility
criteria for the single list will be phased out gradually.

The first step towards establishing the single list included:

(a)

introducing a new category of previously ineligible collateral in tier one, namely euro-denominated debt
instruments issued by entities established in those Group of Ten (G10) countries that are not part of the
European Economic Area (EEA);

(37) Liquidity-absorbing outright and reverse open market operations are also based on underlying assets. For underlying assets used in
liquidity-absorbing reverse open market operations, the eligibility criteria are identical to those applied for underlying assets used in
liquidity-providing reverse open market operations. However, no valuation haircuts are applied in liquidity-absorbing operations.

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(b)

refining the standards that non-regulated markets have to comply with to be acceptable for the Eurosystem;
and

(c) withdrawing equities from the tier two lists of countries that currently deem them eligible.

The forementioned changes became applicable immediately and are outlined in Sections 6.2 and 6.3. However,
as they are expected to imply some modifications to the list of eligible collateral, rules for the phasing out of
assets from this list have been devised. Debt instruments listed, quoted or traded on non-regulated markets,
which have been assessed as not being acceptable, will continue to remain eligible until May 2007.

Further changes to implement the single list will follow at a later stage (see Box 7)

BOX 7

Further steps towards a single list of collateral

As a second step towards a single list, the Governing Council of the ECB has approved in principle the
inclusion in the single list of bank loans from all euro area countries, as well as non-marketable retail
mortgage-backed debt instruments, of which currently only Irish mortgage-backed promissory notes are
eligible as collateral. The exact modalities for, and the timing of, the eligibility of bank loans are being
finalised and will be announced in due course, once all implementation issues have been resolved.

Consistency of past and future decisions on the collateral framework by the Governing Council will be
assured.

6.2.

Tier one assets

The ECB establishes and maintains a list of tier one assets. This list is available to the public (38).

Debt certificates issued by the ECB are listed as tier one assets. Debt certificates issued by the national central
banks prior to the adoption of the euro in their respective Member State are also included in the tier one list.

The following eligibility criteria are applied to other tier one assets (see also Table 4):

— They must be debt instruments having: (a) a fixed, unconditional principal amount; and (b) a coupon that
cannot result in a negative cash flow. In addition, the coupon should be one of the following: (i) a zero
coupon; (ii) a fixed rate coupon; or (iii) a floating rate coupon linked to an interest rate reference. The
coupon may be linked to a change in the rating of the issuer itself. Furthermore, inflation-indexed bonds are
also eligible. These features must be maintained until the redemption of the obligation (39).

(38) This list is published and updated daily on the ECB's website (www.ecb.int).
(39) Debt instruments affording rights to the principal and/or the interest that are subordinated to the rights of holders of other debt
instruments of the same issuer (or, within a structured issue, subordinated to other tranches of the same issue) are excluded from tier
one.

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— They must meet high credit standards. In the assessment of the credit standard of debt instruments, the ECB
takes into account, inter alia, available ratings by market agencies, guarantees provided by financially sound
guarantors (40), as well as certain institutional criteria which would ensure particularly high protection of the
instrument holders (41).

— They must be transferable in book-entry form.

— They must be deposited/registered (issued) in the EEA with a central bank or with a central securities
depository (CSD) which fulfils the minimum standards established by the ECB. They must be held (settled) in
the euro area through an account with the Eurosystem or with an SSS which fulfils the standards established
by the ECB (so that perfection and realisation are subject to the law of a euro area country). If the CSD
where the asset is issued and the SSS where it is held are not identical, then the two institutions have to be
connected by a link approved by the ECB (42).

— They must be denominated in euro (43).

— They must be issued (or, alternatively, guaranteed) by entities established in the EEA (44). The debt
instruments may also be issued by entities established in non-EEA G-10 countries (45). In the latter case, the
debt instruments can only be considered eligible if the Eurosystem ascertains that its rights would be
protected in an appropriate manner, as determined by the Eurosystem, under the laws of the respective non-
EEA G-10 country. For this purpose, a legal opinion in a form and with substance acceptable to the
Eurosystem will have to be submitted before the assets can be considered eligible.

(40) Guarantors must be established in the EEA. A guarantee is deemed acceptable if the guarantor has unconditionally and irrevocably
guaranteed the obligations of the issuer in relation to the payment of principal, interest and any other amounts due under the debt
instruments to the holders thereof until they are discharged in full. The guarantee has to be payable on first demand (independently
from the underlying debt obligation). Guarantees given by public entities entitled to levy taxes should either be payable on first
demand or otherwise provide for prompt and punctual payment following default. The obligations of the guarantor under the
guarantee need to rank at least equally and rateably (pari passu) with all other unsecured obligations of the guarantor. The guarantee
must be governed by the law of an EU Member State and be legally valid, binding and enforceable against the guarantor. A legal
confirmation concerning the legal validity, binding effect and enforceability of the guarantee will have to be submitted in a form and
with substance acceptable to the Eurosystem before the asset supported by the guarantee can be considered eligible. If the guarantor is
established in a jurisdiction other than the one of the law governing the guarantee, the legal confirmation shall also confirm that the
guarantee is valid and enforceable under the law governing the establishment of the guarantor. The legal confirmation should be
submitted for review to the national central bank that is reporting a certain asset supported by a guarantee for inclusion in the list of
eligible assets. The national central bank reporting a certain asset is normally the national central bank of the country in which the
asset will be listed, traded or quoted. In the event of multiple listings, any queries should be addressed to the ECB's Eligible Assets
Hotline (Eligible-Assets.hotline@ecb.int). The need for a legal confirmation does not apply to guarantees given in respect of debt
instruments with an individual asset rating or to guarantees given by public entities entitled to levy taxes. The requirement of
enforceability is subject to any insolvency or bankruptcy laws, general principles of equity and other similar laws and principles
applicable to the guarantor and generally affecting creditors' rights against the guarantor.

(41) Debt instruments issued by credit institutions that comply strictly with the criteria set out in Article 22(4) of Council Directive
85/611/EEC of 20 December 1985 on the coordination of laws, regulations and administrative provisions relating to undertakings for
collective investment in transferable securities (UCITS) (OJ L 375, 31.12.1985, p. 3), as amended by Directive 88/220/EEC (OJ L 100,
19.4.1988, p. 31). Directive 2001/107/EC of the European Parliament and of the Council (OJ L 41, 13.2.2002, p. 20), and Directive
2001/108/EC of the European Parliament and of the Council (OJ L 41, 13.2.2002, p. 35), are eligible in tier one.

(42) The description of the standards for the use of eligible SSSs in the euro area and an updated list of the eligible links between these

systems can be found on the ECB's website (www.ecb.int).
(43) Expressed as such or in the national denominations of the euro.
(44) The requirement that the issuing entity be established in the EEA or in non-EEA G10 countries does not apply to international and

supranational institutions.

(45) Non-EEA G10 countries currently include the United States, Canada, Japan and Switzerland.

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— They must be listed or quoted on a regulated market as defined in Directive 2004/39/EC of the European
Parliament and of the Council (46), on markets in financial instruments or listed, quoted or traded on certain
non-regulated markets as specified by the ECB (47). The assessment of non-regulated markets by the
Eurosystem is based on three principles — safety, transparency and accessibility (48). Furthermore, market
liquidity may be taken into account by the ECB when determining the eligibility of
individual debt
instruments.

In spite of their inclusion in the tier one list, a counterparty may not submit as underlying assets any debt
instruments issued or guaranteed by that counterparty, or by any other entity with which the counterparty has
close links (49), (50), (51).

In spite of their inclusion in the tier one list, national central banks may decide not to accept the following
instruments as underlying assets:

— debt instruments falling due for repayment before the maturity date of the monetary policy operation for

which they are being used as underlying assets (52); and

— debt instruments with an income flow (e.g. a coupon payment) occurring in the period up to the maturity

date of the monetary policy operation for which they are being used as underlying assets.

All tier one assets must be usable in a cross-border context in the whole euro area. This implies that all
Eurosystem counterparties must be able to use such assets either through links with their domestic SSSs or
through other eligible arrangements to receive credit from the national central bank of the Member State in
which the counterparty is established (see Section 6.6).

Tier one assets are eligible for all monetary policy operations which are based on underlying assets, i.e. reverse
and outright open market transactions and the marginal lending facility.

(48)

(46) OJ L 145, 30.4.2004, p. 1.
(47) Debt instruments issued by credit institutions that do not comply strictly with the criteria set out in Article 22(4) of Directive 85/
611/EEC, as amended, are accepted in tier one only if they are listed or quoted on a regulated market as defined in Directive 2004/
39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments amending Council
Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the European Parliament and of the Council and repealing Council
Directive 93/22/EEC.
“Safety”, “transparency” and “accessibility” are defined by the Eurosystem exclusively in terms of the performance of the Eurosystem's
collateral management function. The selection process is not aimed at assessing the intrinsic quality of the various markets. The
principles are to be understood as follows: Safety is taken to mean certainty with regard to transactions, in particular certainty on the
validity and enforceability of transactions. Transparency is taken to mean unimpeded access to information on the market's rules of
procedures and operation, the financial features of the assets, the price formation mechanism, and the relevant prices and quantities
(quotes, interest rates, trading volumes, outstanding amounts, etc.). Accessibility refers to the Eurosystem's ability to take part in and
have access to the market; a market is accessible for collateral management purposes if its rules of procedures and operation allow the
Eurosystem to obtain information and conduct transactions when needed for these purposes. The Eurosystem intends to reassess the
list of non-regulated markets and publish the list of acceptable ones on the ECB's website (www.ecb.int) at least once a year.
In the event of a counterparty using assets that, owing to an identity with the issuer/guarantor or the existence of close links, it may
not or no longer use to secure an outstanding credit, it is obliged to immediately notify the relevant national central bank thereof.
The assets are valued at zero on the next valuation date and a margin call may be triggered (see also Annex 6). In addition, the
counterparty has to remove the asset on the earliest possible date.

(49)

(50) Close links means a situation in which the counterparty is linked to an issuer of debt instruments by reason of the fact that:

(i)

(ii)

(iii)

the counterparty owns 20 % or more of the capital of the issuer, or one or more undertakings in which the counterparty owns
the majority of the capital own 20 % or more of the capital of the issuer, or the counterparty and one or more undertakings in
which the counterparty owns the majority of the capital together own 20 %or more of the capital of the issuer; or
the issuer owns 20 % or more of the capital of the counterparty, or one or more undertakings in which the issuer owns the
majority of the capital own 20 % or more of the capital of the counterparty, or the issuer and one or more undertakings in
which the issuer owns the majority of the capital together own 20 % or more of the capital of the counterparty; or
a third party owns both the majority of the capital of the counterparty and the majority of the capital of the issuer, either
directly or indirectly, through one or more undertakings in which that third party owns the majority of the capital.

(51) This provision does not apply to: (i) close links between the counterparty and the public authorities of EEA countries (including the
case where the public authority is a guarantor of the issuer); (ii) trade bills, for which at least one entity (other than a credit
institution) is liable in addition to the counterparty; (iii) debt instruments which comply strictly with the criteria set out in Article
22(4) of Directive 85/611/EEC, as amended; or (iv) cases in which debt instruments are protected by specific legal safeguards
comparable with (iii).
If the national central banks were to allow the use of instruments with a maturity shorter than the monetary policy operations for
which they serve as underlying assets, counterparties would be required to replace such assets at, or prior to, maturity.

(52)

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6.3.

Tier two assets

In addition to debt instruments fulfilling the eligibility criteria for tier one, national central banks may consider,
as eligible other assets, tier two assets which are of particular importance to their national financial markets and
banking systems. Eligibility criteria for tier two assets are established by the national central banks in accordance
with the minimum eligibility criteria stated below. The specific national eligibility criteria for tier two assets are
subject to approval by the ECB. The national central banks establish and maintain national lists of eligible tier
two assets. These lists are available to the public (53).

Tier two assets have to fulfil the following minimum eligibility criteria (see also Table 4):

— They can be debt instruments (marketable or non-marketable) having: (a) a fixed, unconditional principal
amount; and (b) a coupon that cannot result in a negative cash flow. In addition, the coupon should be one
of the following: (i) a zero coupon; (ii) a fixed rate coupon; or (iii) a floating rate coupon linked to an
interest rate reference. The coupon may be linked to a change in the rating of the issuer itself. Furthermore,
inflation-indexed bonds are also eligible. These features must be maintained until the redemption of the
obligation.

TABLE 4

Eligible assets for Eurosystem monetary policy operations

Criteria

Tier one

Tier two

Type of asset

— ECB debt certificates
— Other marketable

debt instruments (1), (2)

— Marketable debt instruments (1)
— Non-marketable debt
instruments (1)

Settlement procedures

Type of issuer

Credit standard

be

Instruments must
centrally
deposited in book-entry form with
national central banks or an SSS
fulfilling
ECB's minimum
standards

the

— Central banks
— Public sector
— Private sector (3)
— International and supranational

institutions

The asset must be deemed of high
credit quality by the ECB (which
could include an eligible guarantee of
an EEA guarantor which is deemed
financially sound by the ECB)

Assets must be easily accessible to the
central bank which has
national
included them in its tier two list

— Public sector
— Private sector (4)

The asset must be deemed of high
credit quality by the national central
bank which has included it in its tier
two list
(which could include an
eligible guarantee of a euro area
guarantor which is deemed financially
sound by the national central bank
which has included the asset in its tier
two list)

Place of establishment of
the issuer

EEA and non-EEA G10 countries (5)

Euro area

Place of establishment of
the guarantor

EEA

Euro area

Location of asset

— Place of issue: EEA
— Place of settlement: euro area (6)

Euro area (6)

(53) These lists are published and updated daily on the ECB's website (www.ecb.int). For non-marketable tier two assets and debt
instruments with restricted liquidity and special features, national central banks may decide not to disclose information on individual
issues, issuers/debtors or guarantors in the publication of their national tier two lists, but must offer alternative information to ensure
that counterparties throughout the euro area can easily ascertain the eligibility of a specific asset.

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Criteria

Tier one

Tier two

Currency

Euro (7)

Cross-border use

Yes

Euro (7)

Yes

(1) They must have both: (a) a fixed, unconditional principal amount; and (b) a coupon that cannot result in a negative
cash flow. In addition, the coupon should be one of the following: (i) a zero coupon; (ii) a fixed rate coupon; or (iii)
a floating rate coupon linked to an interest rate reference. The coupon may be linked to a change in the rating of the
issuer itself. Furthermore, inflation-indexed bonds are eligible. These features must be maintained until the redemption
of the obligation.

(2) Debt instruments affording rights to the principal and/or the interest that are subordinated to the rights of holders of
other debt instruments of the same issuer (or, within a structured issue, subordinated to other tranches of the same
issue) are excluded from tier one.

(3) Debt instruments issued by credit institutions which comply strictly with the criteria set out in Article 22(4) of
Directive 85/611/EEC, as amended, are eligible in tier one. Debt instruments issued by credit institutions which do not
comply strictly with such criteria may be accepted in tier one only if they are listed or quoted on a regulated market as
defined in Directive 2004/39/EC.

(4) Debt instruments issued by credit institutions which do not comply strictly with the criteria set out in Article 22(4) of
Directive 85/611/EEC, as amended, are normally not eligible for inclusion in tier two lists. However, the ECB may
authorise national central banks to include such assets in their tier two lists subject to certain conditions and
restrictions.

(5) The requirement that the issuing entity be established in the EEA or in non-EEA G10 countries does not apply to

international and supranational institutions.

(6) So that perfection and realisation are subject to the law of a Member State of the euro area.
(7) Expressed as such or in the national denominations of the euro.

— They must be debt obligations against (or be guaranteed by) (54) entities which are deemed to be financially
sound by the national central bank which has included the assets in its tier two list. They must be easily
accessible to the national central bank which has included the assets in its tier two list.

— They must be located in the euro area (so that perfection and realisation are subject to the law of a euro

area country).

— They must be denominated in euro (55).

— They must be issued (or, alternatively, guaranteed) by entities established in the euro area.

In spite of their inclusion in the tier two lists, a counterparty may not submit as underlying assets any debt
obligations against that counterparty, or any other entity with which the counterparty has close links (56), (57), (58).

In spite of their inclusion in the tier two lists, national central banks may decide not to accept the following
assets as underlying assets:

— debt instruments falling due for repayment before the maturity date of the monetary policy operation for

which they are used as underlying assets (59); or

— debt instruments with an income flow (e.g. a coupon payment) occurring in the period up to the maturity

date of the monetary policy operation for which they are being used as underlying assets.

(54) Guarantors must be established in the euro area. For the remaining conditions see footnote 40.
(55) Expressed as such or in the national denominations of the euro.
(56) See footnote 49.
(57) See footnote 50.
(58) See footnote 51.
(59) See footnote 52.

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All tier two assets must be usable in a cross-border context in the whole euro area. This implies that all
Eurosystem counterparties must be able to use such assets either through links with their domestic SSS or
through other eligible arrangements to receive funds from the national central bank of the Member State in
which the counterparty is established (see Section 6.6).

Tier two assets are eligible for reverse open market transactions and the marginal lending facility. They are not
normally used in Eurosystem outright transactions.

6.4.

Risk control measures

Risk control measures are applied to the assets underlying Eurosystem monetary policy operations in order to
protect the Eurosystem against the risk of financial loss if underlying assets have to be realised owing to the
default of a counterparty. The risk control measures at the disposal of the Eurosystem are described in Box 8.

BOX 8

Risk control measures

The Eurosystem currently applies the following risk control measures:

— Valuation haircuts

The Eurosystem applies “valuation haircuts” in the valuation of underlying assets. This implies that
the value of the underlying asset is calculated as the market value of the asset less a certain
percentage (haircut).

— Variation margins (marking to market)

The Eurosystem requires the haircut-adjusted market value of the underlying assets used in its
liquidity-providing reverse transactions to be maintained over time. This implies that if the value,
measured on a regular basis, of the underlying assets falls below a certain level, the national central
bank will require the counterparty to supply additional assets or cash (i.e. a margin call). Similarly,
if the value of the underlying assets, following their revaluation, exceeds a certain level, the
counterparty may retrieve the excess assets or cash. (The calculations relevant for the execution of
margin calls are presented in Box 12.)

The following risk control measures are currently not applied by the Eurosystem:

— Initial margins

The Eurosystem may apply initial margins in its liquidity-providing reverse transactions. This would
imply that counterparties would need to provide underlying assets with a value at least equal to the
liquidity provided by the Eurosystem plus the value of the initial margin.

— Limits in relation to issuers/debtors or guarantors

The Eurosystem may apply limits to the exposure vis-à-vis issuers/debtors or guarantors.

— Additional guarantees

The Eurosystem may require additional guarantees from financially sound entities in order to
accept certain assets.

— Exclusion

The Eurosystem may exclude certain assets from use in its monetary policy operations.

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6.4.1.

Risk control measures for tier one assets

The Eurosystem applies specific risk control measures according to the types of underlying assets offered by the
counterparty. The appropriate risk control measures for tier one assets are determined by the ECB. Risk control
measures for tier one assets are broadly harmonised across the euro area (60). The risk control framework for tier
one assets includes the following main elements:

— Eligible tier one assets are allocated to one of four categories of decreasing liquidity, based on issuer
classification and asset type. The allocation of eligible assets to the four liquidity categories is described in
Box 9.

BOX 9

Liquidity categories for tier one assets (1)

Category I

Category II

Category III

Category IV

Central government
debt instruments

Local and regional
government debt
instruments

Traditional Pfandbrief-
style debt instruments

Asset-backed
securities (2)

Debt instruments issued
by central banks (3)

Jumbo Pfandbrief-style
debt instruments (4)

Credit institution debt
instruments

Agency debt
instruments (5)

Debt instruments
issued by corporate
and other issuers (5)

Supranational debt
instruments

(1)

In general, the issuer classification determines the liquidity category. However, all asset-backed securities are
included in category IV, regardless of the classification of the issuer, and Jumbo Pfandbrief-style debt
instruments are included in category II, in contrast to other debt instruments issued by credit institutions
which are included in category III.

(2) Asset-backed securities fall into liquidity category IV regardless of the issuer classification.
(3) Debt certificates issued by the ECB and debt instruments issued by the national central banks prior to the

adoption of the euro in their respective Member State are included in liquidity category I.

(4) Only instruments with an issuing volume of at least EUR 500 million, for which at least two market makers

provide regular bid and ask quotes, fall into the asset class of Jumbo Pfandbrief-style instruments.

(5) Only securities issued by issuers that have been classified as agencies by the ECB are included in liquidity

category II. Securities issued by other agencies are included in liquidity category III.

(60) Owing to operational differences across Member States in respect of the procedures for counterparties' delivery of underlying assets to
the national central banks (in the form of a pool of collateral pledged with the national central bank or as repurchase agreements
based on individual assets specified for each transaction), minor differences may occur with regard to the timing of the valuation and
other operational features of the risk control framework.

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— Individual debt instruments are subject to specific “valuation haircuts”. The haircuts are applied by deducting
a certain percentage from the market value of the underlying asset. The haircuts differ according to the
residual maturity and coupon structure of the debt instruments as described in Boxes 10 and 11.

Level of valuation haircuts (%) applied to eligible tier one assets in relation to fixed coupon
and zero coupon instruments

BOX 10

Liquidity categories

Category I

Category II

Category III

Category IV

fixed
coupon

zero
coupon

fixed
coupon

zero
coupon

fixed
coupon

zero
coupon

fixed
coupon

zero
coupon

0,5

1,5

3

3,5

4,5

8,5

1

2,5

3,5

4,5

5,5

7,5

1

2,5

4

5

6,5

12

1,5

3

4,5

5,5

6,5

9

1,5

3

5

6

8

15

2

3,5

5,5

6,5

8

12

2

3,5

6

7

10

18

Residual
maturity
(years)
0–1
1–3
3–5
5–7
7–10

0,5

1,5

2,5

3

4

> 10

5,5

— The valuation haircuts applied to all tier one fixed coupon and zero coupon instruments are described in

Box 10 (61).

— The valuation haircuts applied to all tier one inverse floating rate instruments are the same for all liquidity

classes and are described in Box 11.

Level of valuation haircuts (%) applied to eligible tier one inverse floating rate instruments

BOX 11

Residual maturity (years)
0–1
1–3
3–5
5–7
7–10

> 10

Inverse floaters coupon

2

7

10

12

17

25

— The haircut applied to debt instruments with variable rate coupons (62) is that applied to the zero-to-one-
year maturity bucket of fixed coupon instruments in the liquidity category to which the instrument is
assigned.

(61) The valuation haircut levels applied to fixed coupon securities are also applicable to debt instruments, the coupon of which is linked

to a change in the rating of the issuer itself or to inflation-indexed bonds.

(62) A coupon payment is considered a variable rate payment if the coupon is linked to a reference interest rate and if the resetting period
corresponding to this coupon is no longer than one year. Coupon payments for which the resetting period is longer than one year
are treated as fixed rate payments, with the relevant maturity for the haircut being the residual maturity of the debt instrument.

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— The risk control measures applied to a debt instrument with more than one type of coupon payment
depend only on the coupon payments during the remaining life of the instrument. The valuation haircut
applied to such an instrument is set equal to the highest of the haircuts applicable to debt instruments with
the same residual maturity, and coupon payments of any one of the types occurring in the remaining life of
the instrument are considered.

— No valuation haircuts are applied in liquidity-absorbing operations.

— Depending on both the jurisdiction and national operational systems, national central banks allow for the
pooling of underlying assets and/or require the earmarking of the assets used in each individual transaction.
In pooling systems, the counterparty makes a pool of sufficient underlying assets available to the central
bank to cover the related credits received from the central bank, thus implying that individual assets are not
linked to specific credit operations. By contrast, in an earmarking system, each credit operation is linked to
specific identifiable assets.

— The assets are subject to daily valuation. On a daily basis, national central banks calculate the required value
of underlying assets taking into account changes in outstanding credit volumes, the valuation principles
outlined in Section 6.5 and the required valuation haircuts.

— If, after valuation, the underlying assets do not match the requirements as calculated on that day, symmetric
margin calls are performed. In order to reduce the frequency of margin calls, national central banks may
apply a trigger point. If applied, this trigger point is 0,5 % of the amount of liquidity provided. Depending
on the jurisdiction, national central banks may require margin calls to be effected either through the supply
of additional assets or by means of cash payments. This implies that if the market value of the underlying
assets falls below the lower trigger point, counterparties have to supply additional assets (or cash). Similarly,
if the market value of the underlying assets, following their revaluation, were to exceed the upper trigger
point, the national central bank would return the excess assets (or cash) to the counterparty (see Box 12).

BOX 12

Calculation of margin calls

The total amount of eligible assets J (for j = 1 to J; value Cj,t at time t) a counterparty must provide
for a set of liquidity-providing operations I (for i = 1 to I; amount Li,t at time t) is determined by
the following formula:

XI

i=1

J

Li;t ≤ X

ð1 (cid:1) hjÞ Cj;t

j=1

where:

hj is the valuation haircut applied to eligible asset j.

If τ is the time period between revaluations, the margin call base at time t+τ equals:

Mt+τ =

XI

i=1

Li;tþτ (cid:1)

J
X

ð1 (cid:1) hjÞ Cj;t+τ

j=1

ð1Þ

ð2Þ

Depending on the operational
the national central banks' collateral management
systems, national central banks may also take into account interest accrued on liquidity provided in
outstanding operations in the calculation of the margin call base.

features of

Margin calls are effected only if the margin call base exceeds a certain trigger point level.

Let k = 0,5 % denote the trigger. In an earmarking system (I=1), a margin call is effected when:

Mt + τ > k · Li;t+τ

(the counterparty pays the margin call to the national central bank); or

Mt + τ< (cid:1) k · Li;t+τ (the national central bank pays the margin call to the counterparty).

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In a pooling system, the counterparty has to bring more assets into the pool if:

Mt+τ > k ·

XI

i=1

Li;tþτ

Conversely, the amount of intraday credit (IDC) available to the counterparty in a pooling system
can be expressed as follows:

IDC = (cid:1) Mt+τ + k ·

XI

i=1

Li;tþτ (if positive)

In both earmarking and pooling systems, margin calls ensure that the relation expressed in (1)
above is re-established.

— In pooling systems counterparties may substitute underlying assets on a daily basis.

— In earmarking systems the substitution of underlying assets may be permitted by national central banks.

— The ECB may at any time decide to remove individual debt instruments from the list of eligible tier one

instruments (63).

6.4.2.

Risk control measures for tier two assets

The appropriate risk control measures for tier two assets are compiled by the national central bank which has
included the asset in its tier two list. The application of risk control measures by national central banks is subject
to ECB approval. The Eurosystem aims to ensure non-discriminatory conditions for tier two assets across the
euro area when establishing the appropriate risk control measures. Within this framework, the valuation haircuts
applied to tier two assets reflect the specific risks associated with these assets and are at least as stringent as the
valuation haircuts applied to tier one assets. Tier two assets are classified in three different haircut groups,
reflecting differences in their intrinsic financial characteristics and in their liquidity. The liquidity groups and
valuation haircuts for tier two assets are described in Box 13.

BOX 13

Level of valuation haircuts (%) applied to eligible tier two assets

1. Valuation haircuts (%) applied to marketable debt instruments with limited liquidity (1):

Residual maturity (years)
0–1
1–3
3–5
5–7
7–10
>10

Fixed coupon

Zero coupon

2
3,5
5,5
6,5
8
12

2
3,5
6
7
10
18

Valuation haircuts applied to tier two inverse floating rate instruments:

The valuation haircuts applied to all tier two inverse floating rate instruments are identical to those
applied to tier one inverse floatingrate instruments.

(63)

If, at the time of exclusion from the tier one list, a debt instrument is being used in a Eurosystem credit operation, it will have to be
removed as soon as possible.

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2. Valuation haircuts (%) applied to debt instruments with restricted liquidity and special

features:
Residual maturity (years)
0–1
1–3
3–5
5–7
7–10
>10

Fixed coupon

Zero coupon

4
8
15
17
22
24

4
8
16
18
23
25

3. Valuation haircuts applied to non-marketable debt instruments:

Trade bills:

4 % for instruments with a residual maturity of up to six months.

Bank loans:

12 % for loans with a residual maturity of up to six months; and
22 % for loans with a residual maturity between six months and two
years.

Mortgage-backed promissory notes: 22 %.

(1)

It should be recalled that, although debt instruments issued by credit institutions which do not comply strictly
with the criteria set out in Article 22(4) of Directive 85/611/EEC, as amended, are normally not eligible for
inclusion in tier two lists, the ECB may authorisenational central banks to include such assets in their tier two
lists subject to certain conditions and restrictions. For such instruments, a 10 % add-on to the tier two haircut
is applied.

The inclusion of tier two assets in one of the following liquidity groups is proposed by national central banks
and is subject to the ECB's approval:

1. M a r k e t a b l e d e b t i n s t r u m e n t s w i t h l i m i t e d l i q u i d i t y :

the majority of the tier two assets fall into this category. Although there may be some differences in the
degree of liquidity, the assets are, in general, similar in that they have a small secondary market, prices may
not be quoted daily and normal size trades can generate price effects.

2. D e b t i n s t r u m e n t s w i t h r e s t r i c t e d l i q u i d i t y a n d s p e c i a l f e a t u r e s :

these are assets which, while enjoying some aspects of marketability, require extra time to be liquidated in
the market. This is the case for assets which are generally non-marketable but which have special features
that introduce some marketability, including market auction procedures (if there is a need to liquidate the
assets) and a daily price valuation.

3. N o n - m a r k e t a b l e d e b t i n s t r u m e n t s :

these instruments are non-marketable in practice and therefore have little or no liquidity.

For tier two assets with variable rate coupons and debt instruments with more than one type of coupon
payment, the same rules apply as for tier one assets, unless otherwise determined by the ECB (64).

The national central banks apply the same trigger point (if applicable) for the execution of margin calls for tier
two assets as for tier one assets. In addition, national central banks may apply limits to their acceptance of tier
two assets, may require additional guarantees and may decide at any time to remove individual assets from their
tier two lists.

(64) For some tier two assets with interest rate resetting features, in which the resetting is done in an unequivocal and clear manner

following market standards and subject to the ECB's approval, the relevant maturity is that given by the resetting maturity.

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6.5.

Valuation principles for underlying assets

When determining the value of underlying assets used in reverse transactions, the Eurosystem applies the
following principles:

— For each marketable asset eligible in tier one or tier two, the Eurosystem specifies a single reference price
source. This also implies that for assets listed, quoted or traded on more than one market, only one of these
markets is used as a price source for the relevant asset.

— For each reference market,

the Eurosystem defines the most representative price to be used for the
calculation of market values. If more than one price is quoted, the lowest of these prices (normally the bid
price) is used.

— The value of marketable assets is calculated on the basis of the most representative price on the business day

preceding the valuation date.

— In the absence of a representative price for a particular asset on the business day preceding the valuation
date, the last trading price is used. If no trading price is available, the national central bank will define
a price, taking into account the last price identified for the asset in the reference market.

— The market value of a debt instrument is calculated as including accrued interest.

— Depending on differences in national legal systems and operational practices, the treatment of income flows
(e.g. coupon payments) related to an asset which are received during the life of a reverse transaction may
differ between national central banks. If the income flow is transferred to the counterparty, national central
banks ensure that the relevant operations will still be fully covered by a sufficient amount of underlying
assets before the transfer of the income takes place. The national central banks aim to ensure that the
economic effect of the treatment of income flows is equivalent to a situation in which the income is
transferred to the counterparty on the payment day (65).

— For non-marketable tier two assets, the national central bank which has included the assets in its tier two list

specifies separate valuation principles.

6.6.

Cross-border use of eligible assets

Eurosystem counterparties may use eligible assets on a cross-border basis, i.e. they may obtain funds from the
national central bank of the Member State in which they are established by making use of assets located in
another Member State. Underlying assets must be usable on a cross-border basis in the whole euro area for the
settlement of all types of operations in which the Eurosystem provides liquidity against eligible assets.

A mechanism has been developed by the national central banks (and by the ECB) to ensure that all eligible assets
issued/deposited in the euro area may be used on a cross-border basis. This is the correspondent central banking
model (CCBM), under which national central banks act as custodians (“correspondents”) for each other (and for
the ECB) in respect of assets accepted in their local depository or settlement system. Specific solutions may be
used for non-marketable assets or tier two assets with restricted liquidity and special features which cannot be
transferred through an SSS (66). The CCBM may be used to collateralise all kinds of Eurosystem credit operations.
In addition to the CCBM, eligible links between SSSs can be used for the cross-border transfer of securities (67).

(65) National central banks may decide not to accept debt instruments with an income flow (e.g. a coupon payment) occurring in the
period up to the maturity date of the monetary policy operation as underlying assets in reverse transactions (see Sections 6.2 and
6.3).

(66) Details are provided in the “Correspondent Central Banking Model brochure”, which is available on the ECB's website (www.ecb.int).
(67) Eligible assets may be used through an account of a central bank in an SSS located in a country other than that of the central bank in
question if the Eurosystem has approved the use of such an account. Since August 2000, the Central Bank and Financial Services
Authority of Ireland has been authorised to open such an account in Euroclear. This account can be used for all eligible assets held in
Euroclear, i.e. including eligible assets transferred to Euroclear through eligible links.

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6.6.1.

Correspondent central banking model

The correspondent central banking model is illustrated in Chart 3 below.

CHART 3

The correspondent central banking model

All national central banks maintain securities accounts with each other for the purpose of the cross-border use
of eligible assets. The precise procedure of the CCBM depends on whether the eligible assets are earmarked for
each individual transaction or whether they are held in a pool of underlying assets (68).

— In an earmarking system, as soon as its bid for credit is accepted by the national central bank of the
Member State in which the counterparty is established (i.e. the “home central bank”), the counterparty
instructs (via its own custodian, if necessary) the SSS in the country in which its securities are held to
transfer them to the central bank of that country for the account of the home central bank. Once the home
central bank has been informed by the correspondent central bank that the collateral has been received, it
transfers the funds to the counterparty. Central banks do not advance funds until they are certain that the
counterparties' securities have been received by the correspondent central bank. Where necessary to meet
settlement deadlines, counterparties may be able to pre-deposit assets with correspondent central banks for
the account of their home central bank using the CCBM procedures.

— In a pooling system, the counterparty is able at any time to provide the correspondent central bank with
securities for the account of the home central bank. Once the home central bank has been informed by the
correspondent central bank that the securities have been received, it will add these securities to the pool
account of the counterparty.

The CCBM is available to counterparties from 9 a.m. to 4 p.m. ECB time (C.E.T.) on each Eurosystem business
day. A counterparty wishing to make use of the CCBM must advise the national central bank from which it
wishes to receive credit — i.e. its home central bank — before 4 p.m. ECB time (C.E.T.). Furthermore, the
counterparty must ensure that the collateral for securing monetary policy operations is delivered to the account
of the correspondent central bank by 4.45 p.m. ECB time (C.E.T.) at the latest. Instructions or deliveries not

(68) See the “Correspondent Central Banking Model brochure” for further explanations.

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respecting this deadline will only be considered for credit given on the following business day. When the
counterparties foresee a need to use the CCBM late in the day, they should, where possible, deliver the assets in
advance (i.e. pre-deposit
In exceptional circumstances or when required for monetary policy
purposes, the ECB may decide to extend the closing time of the CCBM until the closing time of TARGET.

the assets).

6.6.2.

Links between securities settlement systems

In addition to the CCBM, eligible links between EU SSSs can be used for the cross-border transfer of securities.

CHART 4

Links between securities settlement systems

A link between two SSSs allows a participant in one SSS to hold securities issued in another SSS without being
a participant in that other SSS. Before these links can be used to transfer collateral for Eurosystem credit
operations, they have to be assessed and approved against the standards for the use of EU SSSs. (69) (70)

From a Eurosystem perspective, the CCBM and the links between EU SSSs fulfil the same role of allowing
counterparties to use collateral on a cross-border basis, i.e. both enable counterparties to use collateral to obtain
credit from their home central bank, even if this collateral was issued in an SSS of another country. The CCBM
and the links between SSSs perform this function in different ways. In the CCBM, the cross-border relationship is
between the national central banks. They act as custodians for one another. Using the links, the cross-border
relationship is between the SSSs. They open omnibus accounts with one another. Assets deposited with
a correspondent central bank can only be used to collateralise Eurosystem credit operations. Assets held through
a link can be used for Eurosystem credit operations, as well as for any other purpose selected by the
counterparty. When using links between SSSs, the counterparties hold the assets on their own account with their
home SSS and have no need for a custodian.

(69) The updated list of eligible links can be found on the ECB's website (www.ecb.int).
(70) See the publication entitled “Standards for the use of EU securities settlement systems in ESCB credit operations”, European Monetary

Institute, January 1998, on the ECB's website (www.ecb.int).

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CHAPTER 7

7.

MINIMUM RESERVES (71)

7.1.

General considerations

The ECB requires credit institutions to hold minimum reserves on accounts with the national central banks
within the framework of the Eurosystem's minimum reserve system. The legal framework for this system is laid
down in Article 19 of the Statute of the ESCB, Council Regulation (EC) No 2531/98 of 23 November 1998
concerning the application of minimum reserves by the European Central Bank (72) and Regulation (EC) No
1745/2003 of the European Central Bank of 12 September 2003 on the application of minimum reserves (ECB/
2003/9) (73). The application of Regulation ECB/2003/9 ensures that
the
Eurosystem's minimum reserve system are uniform throughout the euro area.

the terms and conditions of

The amount of minimum reserves to be held by each institution is determined in relation to its reserve base. The
Eurosystem's minimum reserve system enables counterparties to make use of averaging provisions, implying that
compliance with reserve requirements is determined on the basis of the average of the end-of-calendar-day
balances on the counterparties' reserve accounts over a maintenance period. Institutions' holdings of required
reserves are remunerated at the rate on the Eurosystem's main refinancing operations.

The Eurosystem's minimum reserve system primarily pursues the following monetary functions:

— Stabilisation of money market interest rates

The averaging provision of the Eurosystem's minimum reserve system aims to contribute to the stabilisation
of money market interest rates by giving institutions an incentive to smooth the effects of temporary
liquidity fluctuations.

— Creation or enlargement of a structural liquidity shortage

The Eurosystem's minimum reserve system contributes to creating or enlarging a structural
liquidity
shortage. This may be helpful in improving the ability of the Eurosystem to operate efficiently as a supplier
of liquidity.

In the application of minimum reserves, the ECB is bound to act in pursuance of the objectives of the
Eurosystem as defined in Article 105(1) of the Treaty and Article 2 of the Statute of the ESCB, which implies,
inter alia, the principle of not inducing significant undesirable delocation or disintermediation.

7.2.

Institutions subject to minimum reserve requirements

Pursuant to Article 19.1 of the Statute of the ESCB, the ECB requires credit institutions established in Member
States to hold minimum reserves. This implies that branches in the euro area of entities with no registered office
in the euro area are also subject to the Eurosystem's minimum reserve system. However, branches located
outside the euro area of credit institutions established in the euro area are not subject to this system.

Institutions will be automatically exempted from reserve requirements from the start of the maintenance period
within which their authorisation is withdrawn or surrendered, or within which a decision to submit the
institution to winding-up proceedings is taken by a judicial authority or any other competent authority of
a participating Member State. According to Regulation (EC) No 2531/98 and Regulation ECB/2003/9, the ECB
may also exempt institutions from their obligations under the Eurosystem's minimum reserve system on a non-
discriminatory basis if the purposes of this system would not be met by imposing these obligations on those
particular institutions. In its decision on any such exemption, the ECB takes into account one or more of the
following criteria:

— the institution is pursuing special purpose functions;

— the institution is not exercising active banking functions in competition with other credit institutions; and/or

(71) The content of this chapter is provided for information purposes only.
(72) OJ L 318, 27.11.1998, p. 1.
(73) OJ L 250, 2.10.2003, p. 10.

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— the institution has all
development assistance.

its deposits earmarked for purposes related to regional and/or international

The ECB establishes and maintains a list of institutions subject to the Eurosystem's minimum reserve system. The
ECB also makes public a list of any institutions exempt from their obligations under this system for reasons
other than their being subject to reorganisation measures (74). Counterparties may rely on these lists in deciding
whether their liabilities are owed to another institution that is itself subject to reserve requirements. The lists,
available to the public after close of business on the last Eurosystem business day of each calendar month, are
valid for the calculation of the reserve base for the maintenance period beginning in the calendar month two
months later. For example, the list published at the end of February would be valid for the calculation of the
reserve base for the maintenance period beginning in April.

7.3.

Determination of minimum reserves

(a) R e s e r v e b a s e a n d r e s e r v e r a t i o s

The reserve base of an institution is defined in relation to elements of its balance sheet. The balance sheet
data are reported to the national central banks within the general framework of the ECB's money and
banking statistics (see Section 7.5) (75). For institutions subject to full reporting requirements, the balance
sheet data referring to the end of a given calendar month are used to determine the reserve base for the
maintenance period starting in the calendar month two months later. For example, the reserve base
calculated from the balance sheet of the end of February would be used to calculate the reserve requirements
to be fulfilled by counterparties in the maintenance period beginning in April.

The reporting framework for the ECB's money and banking statistics includes the possibility to relieve small
institutions of some of the reporting burden. Institutions to which this provision applies only need to report
a limited set of balance sheet data on a quarterly basis (as end-of-quarter data) and with a reporting deadline
which is longer than that set for larger institutions. For these institutions, the balance sheet data reported for
a specific quarter are used to determine, with a lag of two months, the reserve base for the consecutive three
reserve maintenance periods. For example, the balance sheet of the end of the first quarter — March —
would be valid for the calculation of the reserve base for the maintenance periods beginning in June, July
and August.

According to Regulation (EC) No 2531/98, the ECB is entitled to include liabilities resulting from the
acceptance of funds together with liabilities resulting from off-balance-sheet items in the reserve base of
institutions. In the Eurosystem's minimum reserve system, only the liability categories “deposits” and “debt
securities issued” are actually included in the reserve base (see Box 14).

Liabilities vis-à-vis other institutions included in the list of institutions subject to the Eurosystem's minimum
reserve system and liabilities vis-à-vis the ECB and the national central banks are not included in the reserve
base. In this respect, for the liability category “debt securities issued” the issuer needs to be able to prove the
actual amount of these instruments held by other institutions subject to the Eurosystem's minimum reserve
system in order to be entitled to deduct them from the reserve base. If such proof cannot be presented,
issuers may apply a standardised deduction of a fixed percentage (76) to this balance sheet item.

The reserve ratios are determined by the ECB subject to the maximum limit specified in Regulation (EC) No
2531/98. The ECB applies a uniform non-zero reserve ratio to most of the items included in the reserve
base. This reserve ratio is specified in the ECB Regulation on minimum reserves. The ECB sets a zero reserve
ratio on the following liability categories: “deposits with an agreed maturity of over two years”, “deposits
redeemable at notice of over two years”, “repos” and “debt securities with an agreed maturity of over two
years” (see Box 14). The ECB may at any time change the reserve ratios. Changes in reserve ratios are
announced by the ECB in advance of the first maintenance period for which the change is effective.

(74) The lists are available to the public on the ECB's website (www.ecb.int).
(75) The reporting framework for the ECB's money and banking statistics is presented in Annex 4.
(76) See Regulation ECB/2003/9. Further information relating to the standardised deduction ratio can be found on the ECB's website

(www.ecb.int), as well as on the Eurosystem websites (see Annex 5).

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BOX 14

Reserve base and reserve ratios

A. Liabilities included in the reserve base and to which the positive reserve ratio is applied

Deposits

— Overnight deposits

— Deposits with agreed maturity up to two years

— Deposits redeemable at notice up to two years

Debt securities issued

— Debt securities with agreed maturity up to two years

B. Liabilities included in the reserve base and to which a zero reserve ratio is applied

Deposits

— Deposits with agreed maturity over two years

— Deposits redeemable at notice over two years

— Repos

Debt securities issued

— Debt securities with agreed maturity over two years

C. Liabilities excluded from the reserve base

— Liabilities vis-à-vis other institutions subject to the Eurosystem's minimum reserve system

— Liabilities vis-à-vis the ECB and the national central banks

(b) C a l c u l a t i o n o f r e s e r v e r e q u i r e m e n t s

The reserve requirement of each individual institution is calculated by applying, to the amount of eligible
liabilities, the reserve ratios for the corresponding categories of liabilities.

Each institution deducts an allowance of EUR 100 000 from its reserve requirement in each Member State
in which it has an establishment. The granting of such an allowance shall be without prejudice to the legal
obligations of institutions subject to the Eurosystem's minimum reserve system (77).

The reserve requirement for each maintenance period is rounded to the nearest euro.

7.4.

Maintenance of reserve holdings

(a) M a i n t e n a n c e p e r i o d

The ECB publishes a calendar of the reserve maintenance periods at least three months before the start of
each year (78). The maintenance period begins on the settlement day of the first main refinancing operation
following the meeting of the Governing Council, at which the monthly assessment of the monetary policy
stance is pre-scheduled. Under special circumstances, the published calendar may be amended, depending,
among other things, on changes in the schedule of Governing Council meetings.

(77) For institutions allowed to report statistical data as a group on a consolidated basis according to the provisions of the reporting
framework for the ECB's money and banking statistics (see Annex 4), only one such allowance will be granted to the group as
a whole, unless the institutions provide data on the reserve base and reserve holdings in a sufficiently detailed manner to enable the
Eurosystem to verify their accuracy and quality and to determine the respective reserve requirement of each individual institution
included in the group.

(78) The calendar is normally announced in an ECB press release, to be found on the ECB's website (www.ecb.int). In addition, such

a calendar is published in the Official Journal of the European Union and on the Eurosystem websites (see Annex 5).

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(b) R e s e r v e h o l d i n g s

Each institution must hold its minimum reserves on one or more reserve accounts with the national central
bank in the Member State in which it is established. For institutions with more than one establishment in
a Member State, the head office is responsible for fulfilling the aggregate minimum reserves of all the
domestic establishments of the institution (79). An institution with establishments in more than one Member
State is required to hold minimum reserves with the national central bank of each Member State in which it
has an establishment, in relation to its reserve base in the corresponding Member State.

Institutions' settlement accounts with the national central banks may be used as reserve accounts. Reserve
holdings on settlement accounts may be used for intraday settlement purposes. The daily reserve holding of
an institution is calculated as the end-of-day balance on its reserve account.

An institution may apply to the national central bank in the Member State in which the institution is
resident for permission to hold all its minimum reserves indirectly through an intermediary. The possibility
of holding minimum reserves through an intermediary is, as a rule, restricted to institutions which are
constituted in such a way that part of the administration (e.g. treasury management) is normally effected by
the intermediary (e.g. networks of savings banks and cooperative banks may centralise their reserve
holdings). The holding of minimum reserves through an intermediary is subject to the provisions specified
in Regulation ECB/2003/9.

(c) R e m u n e r a t i o n o f r e s e r v e h o l d i n g s

Holdings of required reserves are remunerated at the average, over the maintenance period, of the ECB's rate
(weighted according to the number of calendar days) on the main refinancing operations, calculated using
the formula specified in Box 15. Reserve holdings exceeding the required reserves are not remunerated. The
remuneration is paid on the second NCB business day following the end of the maintenance period over
which the remuneration was earned.

BOX 15

Calculation of the remuneration of holdings of required reserves

The holding of required reserves is remunerated according to the following formula:

Rt =

Ht · nt · rt
100 · 360

rt =

nt
X

i¼1

Mri
nt

where:

Rt

Ht

nt

rt

= remuneration to be paid on holdings of required reserves for the maintenance period t.

= average daily holdings of required reserves for the maintenance period t.

= number of calendar days in the maintenance period t.

= rate of renumeration on holdings of required reserves for the maintenance period t.

Standard rounding of the rate of remuneration to two decimals shall be applied.

i

= ith calendar day of the maintenance period t.

MRi = marginal interest rate for the most recent main refinancing operation settled on or before

calendar day i.

(79)

If an institution has no head office in a Member State in which it is established, it has to designate a principal branch which would
then be responsible for fulfilling the aggregate minimum reserve requirements of all the establishments of the institution in the
relevant Member State.

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7.5.

Reporting, acknowledgement and verification of the reserve base

The reserve base items for the application of minimum reserves are calculated by the institutions subject to
minimum reserves themselves and are reported to the national central banks within the general framework of
the ECB's money and banking statistics (see Annex 4). Article 5 of Regulation ECB/2003/9 defines procedures
for the notification and acknowledgement of the reserve base and the reserve requirement of the institution.

The procedure for the notification and acknowledgement of an institution's minimum reserves is as follows.
Either the relevant participating national central bank or the institution takes the initiative to calculate that
institution's minimum reserves for the relevant maintenance period. The calculated minimum reserves are
notified by the calculating party at the latest three NCB business days before the start of the maintenance period.
The relevant participating national central bank may specify an earlier date as a time limit for the notification of
minimum reserves. It may also specify additional time limits for the institution to notify any revisions to the
reserve base, and any revisions to the notified minimum reserves. The notified party shall acknowledge the
calculated minimum reserves at the latest on the NCB business day preceding the start of the maintenance
period. If the notified party has not replied to the notification by the end of the NCB business day preceding the
start of the maintenance period, it shall be deemed to have acknowledged the amount of minimum reserves of
the institution for the relevant maintenance period. Once acknowledged, the institution's minimum reserves for
the relevant maintenance period cannot be revised.

For institutions that are allowed to act as intermediaries for indirect reserve holdings of other institutions, special
reporting requirements are specified in Regulation ECB/2003/9. The holding of reserves through an intermediary
does not change the statistical reporting obligations of institutions holding reserves via an intermediary.

The ECB and the national central banks have the right, within the scope of Regulation (EC) No 2531/98, to
verify the accuracy and quality of collected data.

7.6.

Non-compliance with minimum reserve obligations

Non-compliance with the minimum reserve obligations arises if an institution's average end-of-calendar-day
balance on its reserve account(s) over the maintenance period is less than its reserve requirement for the
corresponding maintenance period.

Where an institution fails to comply with all or part of the reserve requirement, the ECB may, in accordance
with Regulation (EC) No 2531/98, impose any one of the following sanctions:

— a payment of up to 5 percentage points above the marginal lending rate, applied to the amount of the

reserve requirement which the relevant institution failed to provide; or

— a payment of up to two times the marginal lending rate, applied to the amount of the reserve requirement

which the relevant institution failed to provide; or

— the requirement for the relevant institution to establish non-interest-bearing deposits with the ECB or the
national central banks of up to three times the amount of the reserve requirement which the relevant
institution failed to provide. The maturity of the deposit may not exceed the period during which the
institution failed to comply with the reserve requirement.

Where an institution fails to comply with other obligations under ECB Regulations and Decisions related to the
Eurosystem's minimum reserve system (e.g. if relevant data are not transmitted in time or are not accurate), the
ECB is empowered to impose sanctions in accordance with Council Regulation (EC) No 2532/98 of 23
November 1998 concerning the powers of the European Central Bank to impose sanctions and European
Central Bank Regulation (EC) No 2157/1999 of 23 September 1999 on the powers of the European Central
Bank to impose sanctions (ECB/1999/4) (80). The Executive Board of the ECB may specify and publish the criteria
according to which it will apply the sanctions provided for in Article 7(1) of Regulation (EC) No 2531/98 (81).

In addition, in the case of serious infringements of the minimum reserve requirements, the Eurosystem may
suspend counterparties from participation in open market operations.

(80) OJ L 264, 12.10.1999, p. 21.
(81) Such criteria were published in a notice entitled “Notice of the European Central Bank on the imposition of sanctions for breaches of the

obligation to hold minimum reserves” (OJ C 39, 11.2.2000, p. 3).

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ANNEX 1

Examples of monetary policy operations and procedures

List of examples

Example 1 Liquidity-providing reverse transaction by fixed rate tender

Example 2 Liquidity-providing reverse transaction by variable rate tender

Example 3 Issuance of ECB debt certificates by variable rate tender

Example 4 Liquidity-absorbing foreign exchange swap by variable rate tender

Example 5 Liquidity-providing foreign exchange swap by variable rate tender

Example 6 Risk control measures

EXAMPLE 1

Liquidity-providing reverse transaction by fixed rate tender

The ECB decides to provide liquidity to the market by means of a reverse transaction organised with a fixed rate
tender procedure.

Three counterparties submit the following bids:

Counterparty

Bid (EUR millions)

Bank 1

Bank 2

Bank 3

30

40

70

140

Total

The ECB decides to allot a total of EUR 105 million.

The percentage of allotment is:

105
ð30 þ 40 þ 70Þ

= 75 %

The allotment to the counterparties is:

Counterparty

Bid (EUR millions)

Allotment (EUR millions)

Bank 1

Bank 2

Bank 3

30

40

70

140

Total

22,5

30,0

52,5

105,0

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EXAMPLE 2

Liquidity-providing reverse transaction by variable rate tender

The ECB decides to provide liquidity to the market by means of a reverse transaction organised with a variable rate
tender procedure.

Three counterparties submit the following bids:

Interest rate (%)

Amount (EUR millions)

Bank 1

Bank 2

Bank 3

Total bids

Cumulative bids

3,15

3,10

3,09

3,08

3,07

3,06

3,05

3,04

3,03

Total

5

5

10

5

5

30

5

5

5

5

10

10

5

45

5

5

5

10

15

15

5

10

70

0

10

10

10

20

30

35

15

15

145

0

10

20

30

50

80

115

130

145

The ECB decides to allot EUR 94 million, implying a marginal interest rate of 3,05 %.

All bids above 3,05 % (for a cumulative amount of EUR 80 million) are fully satisfied. At 3,05 % the percentage of
allotment is:

94 (cid:1) 80
35

= 40 %

The allotment to Bank 1 at the marginal interest rate is, for example:

The total allotment to Bank 1 is:

0,4 × 10 = 4

5 + 5 + 4 = 14

The allotment results can be summarised as follows:

Counterparties

Total bids

Total allotment

Bank 1

30,0

14,0

Amount (EUR millions)

Bank 2

45,0

34,0

Bank 3

70,0

46,0

Total

145

94

If the allotment procedure follows a single rate (Dutch) auction, the interest rate applied to the amounts allotted to
the counterparties is 3,05 %.

If the allotment procedure follows a multiple rate (American) auction, no single interest rate is applied to the
amounts allotted to the counterparties; for example, Bank 1 receives EUR 5 million at 3,07 %, EUR 5 million at
3,06 % and EUR 4 million at 3,05 %.

L 111/54

EN

Official Journal of the European Union

2.5.2005

EXAMPLE 3

Issuance of ECB debt certificates by variable rate tender

The ECB decides to absorb liquidity from the market by issuing debt certificates using a variable rate tender
procedure.

Three counterparties submit the following bids:

Interest rate (%)

Amount (EUR millions)

Bank 1

Bank 2

Bank 3

Total

Cumulative bids

3,00

3,01

3,02

3,03

3,04

3,05

3,06

3,08

3,10

Total

5

5

5

10

20

5

5

55

5

5

5

40

10

5

70

5

5

5

10

10

10

10

55

0

10

15

15

25

70

25

15

5

180

0

10

25

40

65

135

160

175

180

The ECB decides to allot a nominal amount of EUR 124,5 million, implying a marginal interest rate of 3,05 %.

All bids below 3,05 % (for a cumulative amount of EUR 65 million) are fully satisfied. At 3,05 % the percentage of
allotment is:

124,5 (cid:1) 65
70

= 85 %

The allotment to Bank 1 at the marginal interest rate is, for example:

The total allotment to Bank 1 is:

0,85 × 20 = 17

5 + 5 + 5 + 10 + 17 = 42

The allotment results can be summarised as follows:

Counterparties

Total bids

Total allotment

Bank 1

55,0

42,0

Amount (EUR millions)

Bank 2

70,0

49,0

Bank 3

55,0

33,5

Total

180,0

124,5

2.5.2005

EN

Official Journal of the European Union

L 111/55

EXAMPLE 4

Liquidity-absorbing foreign exchange swap by variable rate tender

The ECB decides to absorb liquidity from the market by executing a foreign exchange swap on the EUR/USD rate by
means of a variable rate tender procedure. (Note: The euro is traded at a premium in this example.)

Three counterparties submit the following bids:

Swap points
(× 10,000)

6,84

6,80

6,76

6,71

6,67

6,63

6,58

6,54

6,49

Total

Bank 1

Bank 2

Bank 3

Total

Cumulative bids

Amount (EUR millions)

5

5

5

10

25

10

5

65

5

5

10

35

20

10

5

90

5

5

5

5

40

10

10

80

0

10

15

15

25

100

40

25

5

235

0

10

25

40

65

165

205

230

235

The ECB decides to allot EUR 158 million,
a cumulative amount of EUR 65 million) are fully satisfied. At 6,63 the percentage of allotment is:

implying 6,63 marginal swap points. All bids above 6,63 (for

158 (cid:1) 65
100

= 93 %

The allotment to Bank 1 at the marginal swap points is, for example:

0,93 × 25 = 23,25

The total allotment to Bank 1 is:

5 + 5 + 5 + 10 + 23,25 = 48,25

The allotment results can be summarised as follows:

Counterparties

Total bids

Total allotment

Bank 1

65,0

48,25

Amount (EUR millions)

Bank 2

90,0

52,55

Bank 3

80,0

57,20

Total

235,0

158,0

The ECB fixes the spot EUR/USD exchange rate for the operation at 1,1300.

If the allotment procedure follows a single rate (Dutch) auction, at the start date of the operation the Eurosystem
buys EUR 158 000 000 and sells USD 178 540 000. At the maturity date of the operation, the Eurosystem sells
EUR 158 000 000 and buys USD 178 644 754 (the forward exchange rate is 1,130663 = 1,1300 + 0,000663).

L 111/56

EN

Official Journal of the European Union

2.5.2005

If the allotment procedure follows a multiple rate (American) auction, the Eurosystem exchanges the amounts of
euro and US dollars shown in the following table:

Spot transaction

Forward transaction

Exchange rate

Buy EUR

Sell USD

Exchange rate

Sell EUR

Buy USD

1,1300

1,1300

1,1300

1,1300

1,1300

1,1300

1,1300

1,1300

1,1300

10 000 000

11 300 000

15 000 000

16 950 000

15 000 000

16 950 000

25 000 000

28 250 000

93 000 000

105 090 000

10 000 000

11 306 800

15 000 000

16 960 140

15 000 000

16 960 065

25 000 000

28 266 675

93 000 000

105 151 659

1,130684

1,130680

1,130676

1,130671

1,130667

1,130663

1,130658

1,130654

1,130649

Total

158 000 000

178 540 000

158 000 000

178 645 339

2.5.2005

EN

Official Journal of the European Union

L 111/57

EXAMPLE 5

Liquidity-providing foreign exchange swap by variable rate tender

The ECB decides to provide liquidity to the market by executing a foreign exchange swap on the EUR/USD rate by
means of a variable rate tender procedure. (Note: The euro is traded at a premium in this example.)

Three counterparties submit the following bids:

Swap points
(× 10,000)

6,23

6,27

6,32

6,36

6,41

6,45

6,49

6,54

6,58

Total

Bank 1

Bank 2

Bank 3

Total

Cumulative bids

Amount (EUR millions)

5

5

10

10

20

5

5

60

5

5

5

20

20

10

10

75

10

10

20

40

80

35

20

5

220

10

20

40

80

160

195

215

220

5

10

40

20

5

5

85

The ECB decides to allot EUR 197 million,
a cumulative amount of EUR 195 million) are fully satisfied. At 6,54 the percentage of allotment is:

implying 6,54 marginal swap points. All bids below 6,54 (for

197 (cid:1) 195
20

= 10 %

The allotment to Bank 1 at the marginal swap points is, for example:

0,10 × 5 = 0,5

The total allotment to Bank 1 is:

5 + 5 + 10 + 10 + 20 + 5 + 0,5 = 55,5

The allotment results can be summarised as follows:

Counterparties

Total bids

Total allotment

Bank 1

60,0

55,5

Amount (EUR millions)

Bank 2

85,0

75,5

Bank 3

75,0

66,0

Total

220

197

The ECB fixes the spot EUR/USD exchange rate for the operation at 1,1300.

If the allotment procedure follows a single rate (Dutch) auction, at the start date of the operation the Eurosystem
sells EUR 197 000 000 and buys USD 222 610 000. At the maturity date of the operation, the Eurosystem buys
EUR 197 000 000 and sells USD 222 738 838 (the forward exchange rate is 1,130654 = 1,1300 + 0,000654).

L 111/58

EN

Official Journal of the European Union

2.5.2005

If the allotment procedure follows a multiple rate (American) auction, the Eurosystem exchanges the amounts of
euro and US dollars shown in the following table:

Spot transaction

Forward transaction

Exchange rate

Sell EUR

Buy EUR

Exchange rate

Buy USD

Sell EUR

1,1300

1,1300

1,1300

1,1300

1,1300

1,1300

1,1300

1,1300

1,1300

10 000 000

11 300 000

10 000 000

11 300 000

20 000 000

22 600 000

40 000 000

45 200 000

80 000 000

90 400 000

35 000 000

39 550 000

2 000 000

2 260 000

1,130623

1,130627

1,130632

1,130636

1,130641

1,130645

1,130649

1,130654

1,130658

10 000 000

11 306 270

10 000 000

11 306 320

20 000 000

22 612 720

40 000 000

45 225 640

80 000 000

90 451 600

35 000 000

39 572 715

2 000 000

2 261 308

Total

197 000 000

222 610 000

197 000 000

222 736 573

2.5.2005

EN

Official Journal of the European Union

L 111/59

EXAMPLE 6

Risk control measures

This example illustrates the risk control framework applied to underlying assets used in the Eurosystem's liquidity-
providing operations (1). The example is based on the assumption that a counterparty participates in the following
Eurosystem monetary policy operations:

— a main refinancing operation starting on 28 July 2004 and ending on 4 August 2004 where the counterparty is

allotted EUR 50 million at an interest rate of 4,24 %;

— a longer-term refinancing operation starting on 29 July 2004 and ending on 21 October 2004 where the

counterparty is allotted EUR 45 million at an interest rate of 4,56 %; and

— a main refinancing operation starting on 4 August 2004 and ending on 11 August 2004 where the

counterparty is allotted EUR 35 million at an interest rate of 4,26 %.

The characteristics of the underlying tier one assets used by the counterparty to cover these operations are specified
in Table 1 below.

Table 1 — Underlying tier one assets used in the transactions

Characteristics

Name

Asset class

Maturity date

Coupon
definition

Coupon
frequency

Residual
maturity

Haircut

Asset A

Asset B

Asset C

Asset-backed
instrument

Central
government
bond

Corporate
bond

29.8.2006

Fixed rate

6 months

2 years

3,50 %

19.11.2008

Variable rate

12 months

4 years

0,50 %

12.5.2015

Zero coupon
rate

>10 years

15,00 %

Prices in percentages (including accrued interest) (1)

28.7.2004

29.7.2004

30.7.2004

2.8.2004

3.8.2004

4.8.2004

102,63

101,98

98,35

100,55

97,95

101,03

98,15

100,76

98,56

101,02

98,73

55,01

5.8.2004

101,24

98,57

54,87

(1)

The prices shown for a specific valuation date correspond to the most representative price on the business day preceding this
valuation date.

Earmarking system

First, it is assumed that the transactions are carried out with a national central bank using a system where underlying
assets are earmarked for each transaction. The valuation of underlying assets is carried out on a daily basis. The risk
control framework can then be described as follows (see also Table 2 below):

1. On 28 July 2004 the counterparty enters into a repurchase transaction with the national central bank, which
purchases EUR 50,6 million of Asset A. Asset A is an asset-backed instrument with a fixed coupon maturing on
29 August 2006. It thus has a residual maturity of two years, therefore requiring a valuation haircut of 3,5 %.
The market price of Asset A on its reference market on that day is 102,63 %, which includes the accrued
interest on the coupon. The counterparty is required to provide an amount of Asset A, which after deduction of
the 3,5 % valuation haircut, exceeds the allotted amount of EUR 50 million. The counterparty therefore delivers
Asset A for a nominal amount of EUR 50,6 million, the adjusted market value of which is EUR 50 113 203 on
that day.

2. On 29 July 2004 the counterparty enters into a repurchase transaction with the national central bank, which
purchases EUR 21 million of Asset A (market price 101,98 %, valuation haircut 3,5 %) and EUR 25 million of
Asset B (market price 98,35 %). Asset B is a central government bond with variable rate coupon payments, to
which a 0,5 % valuation haircut is applied. The adjusted market value of Asset A and Asset B on that day is EUR
45 130 810, thus exceeding the required amount of EUR 45 000 000.

(1)

The example is based on the assumption that, in the calculation of the need for a margin call, accrued interest on the liquidity
provided is taken into account and a trigger point of 0,5 % of the liquidity provided is applied.

L 111/60

EN

Official Journal of the European Union

2.5.2005

On 29 July 2004 the assets underlying the main refinancing operation initiated on 28 July 2004 are revalued.
With a market price of 101,98 %, the haircut-adjusted market value of Asset A is still within the lower and
upper trigger amounts. The initially pledged collateral is consequently considered to cater for both the initial
amount of liquidity provided and the accrued interest amounting to EUR 5 889.

3. On 30 July 2004 the underlying assets are revalued: the market price of Asset A is 100,55 % and the market
price of Asset B is 97,95 %. Accrued interest amounts to EUR 11 778 on the main refinancing operation
initiated on 28 July 2004 and EUR 5 700 on the longer-term refinancing operation initiated on 29 July 2004.
As a result, the adjusted market value of Asset A in the first transaction falls below the transaction's amount to
be covered (i.e. the liquidity provided plus the accrued interest) by EUR 914 218, but also below the lower
trigger level of EUR 49 761 719. The counterparty delivers EUR 950 000 of Asset A in nominal value terms,
which, after deducting a 3,5 % haircut from the market value based on a price of 100,55 %, restores sufficient
collateral coverage (1).

A margin call is also needed on the second transaction since the adjusted market value of the underlying assets
used in this transaction (EUR 44 741 520) is below the lower trigger level (EUR 44 780 672). The counterparty
therefore provides EUR 270 000 of Asset B with an adjusted market value of EUR 263 143.

4. On 2 and 3 August 2004 the underlying assets are revalued, without causing any margin call

for the

transactions entered into on 28 and 29 July 2004.

5. On 4 August 2004 the counterparty repays the liquidity provided under the main refinancing operation
initiated on 28 July 2004, including the accrued interest of EUR 41 222. The national central bank returns EUR
51 550 000 of Asset A in nominal value.

On the same day the counterparty enters into a new repurchase transaction with the national central bank,
which purchases EUR 75 million of Asset C in nominal value terms. Since Asset C is a zero coupon corporate
bond with a residual maturity of more than ten years requiring a valuation haircut of 15 %, the corresponding
haircut-adjusted market value on that day is of EUR 35 068 875.

The revaluation of assets underlying the long-term refinancing operation initiated on 29 July 2004 reveals that
the adjusted market value of the assets provided exceeds the upper trigger level by approximately EUR 262 000
and leads to the national central bank returning EUR 262 000 of Asset B in nominal value to the
counterparty (2).

Pooling system

Second, it is assumed that the transactions are carried out with a national central bank using a pooling system.
Assets included in the pool of assets used by the counterparty are not earmarked for specific transactions.

The same sequence of transactions is used in this example as in the above example illustrating an earmarking
system. The main difference is that, at revaluation dates, the adjusted market value of all the assets in the pool has to
cover the total amount of all of the counterparty's outstanding operations with the national central bank. The
margin call of EUR 1 178 398 occurring on 30 July 2004 is identical in this example to the one required in the
earmarking system case. The counterparty delivers EUR 1 300 000 of Asset A in nominal value terms, which, after
deducting a 3,5 % haircut from the market value based on a price of 100,55 %, restores sufficient collateral coverage.

Moreover, on 4 August 2004, when the main refinancing operation entered into on 28 July 2004 matures, the
counterparty may keep the assets on its pledge account. An asset can also be exchanged for another asset as shown
in the example, where EUR 51,9 million of Asset A in nominal value are replaced with EUR 75,5 million of Asset
C in nominal value to cover the liquidity provided and the accrued interest under all refinancing operations.

The risk control framework in the pooling system is described in Table 3.

(1) National central banks may perform margin calls in cash rather than securities.
(2)

If a margin had to be paid to the counterparty by the national central bank in relation to the second transaction, such a margin
could, in certain cases, be netted out with the margin paid to the national central bank by the counterparty in relation to the
first transaction. As a result, there would only be one margin settlement.

2.5.2005

EN

Official Journal of the European Union

L 111/61

Table 2 — Earmarking system

Date

Outstanding transactions

Start date

End date

Interest rate

28.7.2004 Main refinancing

28.7.2004

4.8.2004

29.7.2004 Main refinancing

28.7.2004

4.8.2004

Longer-term refinancing

29.7.2004

27.10.2004

30.7.2004 Main refinancing

28.7.2004

4.8.2004

Longer-term refinancing

29.7.2004

27.10.2004

2.8.2004 Main refinancing

28.7.2004

4.8.2004

Longer-term refinancing

29.7.2004

27.10.2004

3.8.2004 Main refinancing

28.7.2004

4.8.2004

Longer-term refinancing

29.7.2004

27.10.2004

4.8.2004 Main refinancing

4.8.2004

11.8.2004

Longer-term refinancing

29.7.2004

27.10.2004

5.8.2004 Main refinancing

4.8.2004

11.8.2004

Longer-term refinancing

29.7.2004

27.10.2004

4,24

4,24

4,56

4,24

4,56

4,24

4,56

4,24

4,56

4,26

4,56

4,26

4,56

Liquidity
provided

50 000 000

50 000 000

45 000 000

50 000 000

45 000 000

50 000 000

45 000 000

50 000 000

45 000 000

35 000 000

45 000 000

35 000 000

45 000 000

Accrued interest

Total amount to
be covered

Lower trigger
amount

Upper trigger
amount

Adjusted market
value

Margin call

—

5 889

—

11 778

5 700

29 444

22 800

35 333

28 500

—

34 200

4 142

39 900

50 000 000

49 750 000

50 250 000

50 113 203

50 005 889

49 755 859

50 255 918

49 795 814

45 000 000

44 775 000

45 225 000

45 130 810

50 011 778

49 761 719

50 261 837

49 097 560

45 005 700

44 780 672

45 230 729

44 741 520

50 029 444

49 779 297

50 279 592

50 258 131

45 022 800

44 797 686

45 247 914

45 152 222

50 035 333

49 785 157

50 285 510

50 123 818

45 028 500

44 803 358

45 253 643

45 200 595

35 000 000

34 825 000

35 175 000

35 068 875

—

—

—

– 914 218

– 264 180

—

—

—

—

—

45 034 200

44 809 029

45 259 371

45 296 029

261 829

35 004 142

34 829 121

35 179 162

34 979 625

45 039 900

44 814 701

45 265 100

45 043 420

—

—

L 111/62

EN

Official Journal of the European Union

2.5.2005

Table 3 — Pooling system

Date

Outstanding transactions

Start date

End date

Interest rate

28.7.2004 Main refinancing

28.7.2004

4.8.2004

29.7.2004 Main refinancing

28.7.2004

4.8.2004

Longer-term refinancing

29.7.2004

27.10.2004

30.7.2004 Main refinancing

28.7.2004

4.8.2004

Longer-term refinancing

29.7.2004

27.10.2004

2.8.2004 Main refinancing

28.7.2004

4.8.2004

Longer-term refinancing

29.7.2004

27.10.2004

3.8.2004 Main refinancing

28.7.2004

4.8.2004

Longer-term refinancing

29.7.2004

27.10.2004

4.8.2004 Main refinancing

4.8.2004

11.8.2004

Longer-term refinancing

29.7.2004

27.10.2004

5.8.2004 Main refinancing

4.8.2004

11.8.2004

Longer-term refinancing

29.7.2004

27.10.2004

4,24

4,24

4,56

4,24

4,56

4,24

4,56

4,24

4,56

4,26

4,56

4,26

4,56

Liquidity
provided

50 000 000

50 000 000

45 000 000

50 000 000

45 000 000

50 000 000

45 000 000

50 000 000

45 000 000

35 000 000

45 000 000

35 000 000

45 000 000

Accrued interest

Total amount to
be covered

Lower trigger
amount (1)

Upper trigger
amount (2)

Adjusted market
value

Margin call

—

5 889

—

11 778

5 700

29 444

22 800

35 333

28 500

—

34 200

4 142

39 900

50 000 000

49 750 000

Not applicable

50 113 203

95 005 889

94 530 859

Not applicable

94 926 624

—

—

95 017 478

94 542 390

Not applicable

93 839 080

– 1 178 398

95 052 244

94 576 983

Not applicable

95 487 902

95 063 833

94 588 514

Not applicable

95 399 949

80 034 200

79 634 029

Not applicable

80 333 458

80 044 042

79 643 821

Not applicable

80 248 396

—

—

—

—

(1)

(2)

In a pooling system, the lower trigger amount is the lowest threshold for margin calls. In practice, most national central banks
require additional collateral whenever the haircut-adjusted market value of the collateral pool falls below the total amount to be
covered.
In a pooling system, the notion of upper trigger amount is not relevant, since the counterparty will constantly target an excess
amount of collateral provided in order to minimise operational transactions.

2.5.2005

EN

Official Journal of the European Union

L 111/63

ANNEX 2

Glossary

Actual/360: the day-count convention applied for the calculation of interest on a credit,
implying that the interest is
calculated over the actual number of calendar days over which the credit is extended, on the basis of a 360-day year. This
day-count convention is applied in Eurosystem monetary policy operations.

American auction: see multiple rate auction.

Averaging provision: a provision allowing counterparties to fulfil their reserve requirements on the basis of their average
reserve holdings over the maintenance period. The averaging provision contributes to the stabilisation of money market
interest rates by giving institutions an incentive to smooth the effects of temporary liquidity fluctuations. The Eurosystem's
minimum reserve system allows for averaging.

Bilateral procedure: a procedure whereby the central bank deals directly with only one or a few counterparties, without
making use of tender procedures. Bilateral procedures include operations executed through stock exchanges or market
agents.

Book-entry system: an accounting system that permits the transfer of securities and other financial assets without the
physical movement of paper documents or certificates (e.g. the electronic transfer of securities). See also dematerialisation.

Central securities depository (CSD): an entity which holds and administers securities or other financial assets, holds the
issuance accounts, and enables transactions to be processed by book entry. Assets may exist either physically (but
immobilised within the CSD) or in a dematerialised form (i.e. only as electronic records).

Close links: a situation in which the counterparty is linked to an issuer of debt instruments by reason of the fact that:
(i) the counterparty owns 20 % or more of the capital of the issuer, or one or more undertakings in which the
counterparty owns the majority of the capital own 20 % or more of the capital of the issuer, or the counterparty and one
or more undertakings in which the counterparty owns the majority of the capital together own 20 % or more of the
capital of the issuer; or (ii) the issuer owns 20 % or more of the capital of the counterparty, or one or more undertakings
in which the issuer owns the majority of the capital own 20 % or more of the capital of the counterparty, or the issuer
and one or more undertakings in which the issuer owns the majority of the capital together own 20 % or more of the
capital of the counterparty; or (iii) a third party owns both the majority of the capital of the counterparty and the
majority of the capital of the issuer, either directly or indirectly, through one or more undertakings in which that third
party owns the majority of the capital.

Collateral pooling system: a central bank system for managing collateral, in which counterparties open a pool account to
deposit assets collateralising their transactions with the central bank. In a pooling system, by contrast with an earmarking
system, the underlying assets are not earmarked for individual transactions.

Collection of fixed-term deposits: a monetary policy instrument that may be used by the Eurosystem for fine-tuning
purposes, where the Eurosystem offers remuneration on counterparties' fixed-term deposits on accounts with the national
central banks in order to absorb liquidity from the market.

Correspondent banking: an arrangement under which one credit institution provides payment and other services to
another credit institution. Payments through correspondents are often executed through reciprocal accounts (nostro and
loro accounts) to which standing credit lines may be attached. Correspondent banking services are primarily provided
across international boundaries but are also known as agency relationships in some domestic contexts. A loro account is
the term used by a correspondent to describe an account held on behalf of a foreign credit institution; the foreign credit
institution would in turn regard this account as its nostro account.

L 111/64

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Official Journal of the European Union

2.5.2005

Correspondent central banking model (CCBM): a mechanism established by the European System of Central Banks with
the aim of enabling counterparties to use underlying assets in a cross-border context. In the CCBM, national central banks act
as custodians for one another. This means that each national central bank has a securities account in its securities
administration for each of the other national central banks (and for the ECB).

Counterparty: the opposite party in a financial transaction (e.g. any transaction with the central bank).

Credit institution: refers in this document to an institution covered by the definition contained in 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, as amended by Directive 2000/28/EC of the European Parliament and of the
Council of 18 September 2000. Thus, a credit institution is: (i) an undertaking whose business is to receive deposits or
other repayable funds from the public and to grant credit for its own account, or (ii) an undertaking or any other legal
‘Electronic money’
person, other than those under (i), which issues means of payment in the form of electronic money.
shall mean monetary value as represented by a claim on the issuer which is: (a) stored on an electronic device, (b) issued
on receipt of funds of an amount not lower in value than the monetary value issued, and (c) accepted as a means of
payment by undertakings other than the issuer.

Cross-border settlement: a settlement which takes place in a country other than the country or countries in which one
or both of the parties to the trade are located.

Custodian: an entity which undertakes the safekeeping and administration of securities and other financial assets on
behalf of others.

Day-count convention: the convention regulating the number of days included in the calculation of interest on credits.
The Eurosystem applies the day-count convention actual/360 in its monetary policy operations.

Delivery versus payment (DVP) or delivery against payment system: a mechanism in an exchange-for-value
settlement system which ensures that the final transfer of assets (securities or other financial instruments) occurs if, and
only if, the final transfer of another asset (or other assets) occurs.

Dematerialisation: the elimination of physical certificates or documents of title which represent ownership of financial
assets so that the financial assets exist only as accounting records.

Deposit facility: a standing facility of the Eurosystem which counterparties may use to make overnight deposits at a national
central bank, which are remunerated at a pre-specified interest rate.

Depository: an agent with the primary role of recording securities either physically or electronically and keeping records
of the ownership of these securities.

Deposits redeemable at notice: the instrument category consisting of deposits for which the holder has to respect
a fixed period of notice before being able to withdraw the funds. In some cases, there is the possibility of withdrawing
a certain fixed amount in a specific period or of earlier withdrawal subject to the payment of a penalty.

Deposits with agreed maturity: the instrument category consisting mainly of time deposits with a given maturity
which, depending on national practices, may be either unconvertible prior to maturity or convertible only subject to
a penalty. This category also encompasses some non-marketable debt instruments, such as non-marketable (retail)
certificates of deposit.

Dutch auction: see single rate auction.

Earmarking system: a system for central banks' collateral management where liquidity is provided against assets
earmarked for each individual transaction.

ECB time: the time of the place in which the ECB is located.

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ECB payment mechanism (EPM): the payment arrangements organised within the ECB and connected to the TARGET
system for the purpose of effecting: (i) payments between accounts held at the ECB, and (ii) payments through the
TARGET system between accounts held at the ECB and at the national central banks.

EEA (European Economic Area) countries: the EU Member States and Iceland, Liechtenstein and Norway.

End-of-day: the time of the business day (after the TARGET system has closed) at which the payments processed in the
TARGET system are finalised for the day.

Euro area: the area encompassing the EU Member States which have adopted the euro as their single currency in
accordance with the Treaty and in which a single monetary policy is conducted under the responsibility of the Governing
Council of the ECB.

European System of Central Banks (ESCB): refers to the European Central Bank (ECB) and the national central banks
of the EU Member States. It should be noted that the national central banks of those Member States which have not
adopted the single currency in accordance with the Treaty retain their powers in the field of monetary policy according to
national law and are thus not involved in the conduct of the monetary policy of the Eurosystem.

Eurosystem: comprises the European Central Bank (ECB) and the national central banks of the Member States of the euro
area. The decision-making bodies of the Eurosystem are the Governing Council and the Executive Board of the ECB.

Eurosystem business day: any day on which the ECB and at least one national central bank are open for the purpose of
conducting Eurosystem monetary policy operations.

Final transfer: an irrevocable and unconditional transfer which effects a discharge of the obligation to make the transfer.

Fine-tuning operation: a non-regular open market operation executed by the Eurosystem mainly in order to deal with
unexpected liquidity fluctuations in the market.

Fixed rate instrument: a financial instrument for which the coupon is fixed throughout the life of the instrument.

Fixed rate tender: a tender procedure where the interest rate is specified in advance by the central bank and participating
counterparties bid the amount of money they want to transact at the fixed interest rate.

Floating rate instrument: a financial instrument for which the coupon is periodically reset relative to a reference index
to reflect changes in short or medium-term market interest rates. Floating rate instruments have either pre-fixed coupons or
post-fixed coupons.

Foreign exchange swap: the simultaneous spot purchase/sale and forward sale/purchase of one currency against another.
The Eurosystem executes open market monetary policy operations in the form of foreign exchange swaps where the
national central banks (or the ECB) buy (or sell) euro spot against a foreign currency and at the same time sell (or buy) it
back in a forward transaction.

Gross settlement system: a transfer system in which the settlement of funds or the transfer of securities occurs on an
instruction-by-instruction basis.

Haircut: see valuation haircut.

Initial margin: a risk control measure that may be applied by the Eurosystem in reverse transactions, implying that the
collateral required for a transaction is equal to the credit extended to the counterparty plus the value of the initial margin.

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Interlinking mechanism: within the TARGET system, the Interlinking mechanism provides common procedures and an
infrastructure which allow payment orders to move from one domestic RTGS system to another.

International Securities Identification Number (ISIN): an international identification code assigned to securities issued
in financial markets.

Intraday credit: credit extended for a period of less than one business day. It may be extended by central banks to even
out mismatches in payment settlements and can take the form of: (i) a collateralised overdraft, or (ii) a lending operation
against a pledge or in a repurchase agreement.

Inverse floating rate instrument: a structured note where the rate of interest paid to the holder of the note varies
inversely with changes in a certain reference interest rate.

Issuer: the entity which is obligated on a security or other financial instrument.

Link between securities settlement systems: a link consists of all the procedures and arrangements which exist
between two securities settlement systems (SSSs) for the transfer of securities between the two SSSs concerned through
a book-entry process.

Longer-term refinancing operation: a regular open market operation executed by the Eurosystem in the form of a reverse
transaction. Longer-term refinancing operations are executed through monthly standard tenders and normally have
a maturity of three months.

Lump-sum allowance: a fixed amount which an institution deducts in the calculation of its reserve requirement within the
minimum reserve framework of the Eurosystem.

Main refinancing operation: a regular open market operation executed by the Eurosystem in the form of a reverse
transaction. Main refinancing operations are conducted through weekly standard tenders and normally have a maturity of
one week.

Maintenance period: the period over which compliance with reserve requirements is calculated. The ECB publishes
a calendar of the reserve maintenance periods at least three months before the start of each year. Maintenance periods
begin on the settlement day of the first main refinancing operation following the meeting of the Governing Council at
which the monthly assessment of the monetary policy stance is pre-scheduled. They normally end on the day preceding
the similar settlement day in the following month. Under special circumstances, the published calendar may be amended,
depending, among other things, on changes in the schedule of Governing Council meetings.

Margin call: a procedure related to the application of variation margins, implying that if the value, as regularly measured,
of the underlying assets falls below a certain level, the central bank requires counterparties to supply additional assets (or
cash). Similarly, if the value of the underlying assets, following their revaluation, were to exceed the amount owed by the
counterparties plus the variation margin, the counterparty may ask the central bank to return the excess assets (or cash)
to the counterparty.

Marginal interest rate: the interest rate at which the total tender allotment is exhausted.

Marginal lending facility: a standing facility of the Eurosystem which counterparties may use to receive overnight credit from
a national central bank at a pre-specified interest rate against eligible assets.

Marginal swap point quotation: the swap point quotation at which the total tender allotment is exhausted.

Marking to market: see variation margin.

Maturity bucket: a class of debt instruments within a liquidity category of tier one assets or within a liquidity category of
tier two assets, the residual maturity of which is within a certain range of values, e.g. the three-to-five-year maturity bucket.

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Maturity date: the date on which a monetary policy operation expires. In the case of a repurchase agreement or swap, the
maturity date corresponds to the repurchase date.

Maximum bid limit: the limit on the largest acceptable bid from an individual counterparty in a tender operation. The
from individual
Eurosystem may impose maximum bid limits
counterparties.

to avoid disproportionately large bids

in order

Maximum bid rate: the upper limit to the interest rate at which counterparties may submit bids in variable rate tenders. Bids
at a rate above the maximum bid rate announced by the ECB are discarded.

Member State: refers in this document to an EU Member State which has adopted the single currency in accordance with
the Treaty.

Minimum allotment amount: the lower limit of the amount to be allotted to individual counterparties in a tender
operation. The Eurosystem may decide to allot a minimum amount to each counterparty in its tender operations.

Minimum allotment ratio: the lower limit, expressed in percentage terms, of the ratio of bids at the marginal interest rate
to be allotted in a tender operation. The Eurosystem may decide to apply a minimum allotment ratio in its tender
operations.

Minimum bid rate: the lower limit to the interest rates at which counterparties may submit bids in variable rate tenders.

Monetary financial institution (MFI): financial institutions which together form the money-issuing sector of the euro
area. These include central banks, resident credit institutions, as defined in Community law, and all other resident financial
institutions whose business is to receive deposits and/or close substitutes for deposits from entities other than MFIs and,
for their own account (at least in economic terms), to grant credit and/or invest in securities.

Multiple rate auction (American auction): an auction at which the allotment interest rate (or price/swap point) equals
the interest rate offered in each individual bid.

National central bank (NCB): refers in this document to a central bank of an EU Member State which has adopted the
single currency in accordance with the Treaty.

NCB business day: any day on which the national central bank of a specific Member State is open for the purpose of
conducting Eurosystem monetary policy operations. In some Member States, branches of the national central bank may be
closed on NCB business days owing to local or regional bank holidays. In such cases, the relevant national central bank is
responsible for informing the counterparties in advance of the arrangements to be made for transactions involving those
branches.

Open market operation: an operation executed on the initiative of the central bank in the financial market. With regard
to their aims, regularity and procedures, Eurosystem open market operations can be divided into four categories: main
refinancing operations, longer-term refinancing operations, fine-tuning operations and structural operations. As for the instruments
used, reverse transactions are the main open market instrument of the Eurosystem and can be employed in all four
categories of operations. In addition, the issuance of debt certificates and outright transactions are available for structural
operations, while outright transactions, foreign exchange swaps and the collection of fixed-term deposits are available for the
conduct of fine-tuning operations.

Outright transaction: a transaction whereby assets are bought or sold up to their maturity (spot or forward).

Pooling system: see collateral pooling system.

Post-fixed coupon: a coupon on floating rate instruments which is determined on the basis of the values taken by the
reference index at a certain date (or dates) during the coupon accrual period.

Pre-fixed coupon: a coupon on floating rate instruments which is determined on the basis of the values taken by the
reference index at a certain date (or dates) before the start of the coupon accrual period.

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Purchase date: the date on which the sale of purchased assets by the seller to the buyer becomes effective.

Purchase price: the price at which purchased assets are sold or are to be sold to the buyer by the seller.

Quick tender: the tender procedure used by the Eurosystem for fine-tuning operations when it is deemed desirable to have
a rapid impact on the liquidity situation in the market. Quick tenders are executed within a time frame of 90 minutes and
are restricted to a limited set of counterparties.

Repo operation: a liquidity-providing reverse transaction based on a repurchase agreement.

Repurchase agreement: an arrangement whereby an asset is sold while the seller simultaneously obtains the right and
obligation to repurchase it at a specific price on a future date or on demand. Such an agreement is similar to
collateralised borrowing, with the difference that ownership of the securities is not retained by the seller. The Eurosystem
uses repurchase agreements with a fixed maturity in its reverse transactions.

Repurchase date: the date on which the buyer is obliged to sell back assets to the seller in relation to a transaction under
a repurchase agreement.

Repurchase price: the price at which the buyer is obliged to sell back assets to the seller in relation to a transaction
under a repurchase agreement. The repurchase price equals the sum of the purchase price and the price differential
corresponding to the interest on the extended liquidity over the maturity of the operation.

Reserve account: an account with the national central bank on which a counterparty's reserve holdings are maintained. The
counterparties' settlement accounts with the national central banks may be used as reserve accounts.

Reserve base: the sum of the balance sheet items which constitute the basis for calculating the reserve requirement of
a credit institution.

Reserve holdings: counterparties' holdings on their reserve accounts which serve to fulfil reserve requirements.

Reserve ratio: the ratio defined by the central bank for each category of balance sheet items included in the reserve base.
The ratios are used to calculate reserve requirements.

Reserve requirement: the requirement for institutions to hold minimum reserves with the central bank. Within the
minimum reserve framework of the Eurosystem, the reserve requirement of a credit institution is calculated by multiplying
the reserve ratio for each category of items in the reserve base with the amount of those items on the institution's balance
sheet. In addition, institutions deduct a lump-sum allowance from their reserve requirement.

Residual maturity: time remaining until the maturity date of a debt instrument.

Reverse transaction: an operation whereby the national central bank buys or sells assets under a repurchase agreement or
conducts credit operations against collateral.

RTGS (real-time gross settlement) system: a settlement system in which processing and settlement take place on an
order-by-order basis (without netting) in real time (continuously). See also TARGET system.

Safe custody account: a securities account managed by the central bank on which credit institutions can place securities
deemed suitable to back central bank operations.

Securities settlement system (SSS): a system which permits the holding and transfer of securities or other financial
assets, either free of payment (FOP) or against payment (delivery versus payment).

Settlement account: an account held by a direct participant in a national RTGS system with the central bank for the
purpose of processing payments.

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Settlement agent: an institution which manages the settlement process (e.g. the determination of settlement positions,
the monitoring of payment exchanges, etc.) for transfer systems or other arrangements requiring settlement.

Settlement date: the date on which a transaction is settled. The settlement might take place on the same day as the trade
(same-day settlement) or one or several days after the trade (the settlement date is specified as the trade date (T) + the
settlement lag).

Single list: a list of assets that fulfil specific eligibility criteria and that will, as from May 2005, gradually be the only
assets used to collateralise the liquidity-providing operations of the Eurosystem.

Single rate auction (Dutch auction): an auction in which the allotment interest rate (or price/swap point) applied for all
satisfied bids is equal to the marginal interest rate.

Solvency risk: the risk of loss owing to the failure (bankruptcy) of an issuer of a financial asset or to the insolvency of
the counterparty.

Standard tender: a tender procedure used by the Eurosystem in its regular open market operations. Standard tenders are carried
out within a time frame of 24 hours. All counterparties fulfilling the general eligibility criteria are entitled to submit bids in
standard tenders.

Standardised deduction: the fixed percentage of the amount outstanding of debt securities with an agreed maturity of
up to two years (including money market paper) which can be deducted from the reserve base by the issuers which cannot
present evidence that such outstanding amount is held by other institutions subject to the minimum reserve system of the
Eurosystem, by the ECB or by a national central bank.

Standing facility: a central bank facility available to counterparties at their own initiative. The Eurosystem offers two
overnight standing facilities: the marginal lending facility and the deposit facility.

Start date: the date on which the first leg of a monetary policy operation is settled. The start date corresponds to the
purchase date for operations based on repurchase agreements and foreign exchange swaps.

Strip (separate trading of interest and principal): a zero coupon bond created in order to trade separately the claims on
particular cash flows of a security and the principal of the same instrument.

Structural operation: an open market operation executed by the Eurosystem mainly in order to adjust the structural liquidity
position of the financial sector vis-à-vis the Eurosystem.

Swap point: the difference between the exchange rate of the forward transaction and the exchange rate of the spot
transaction in a foreign exchange swap.

TARGET (Trans-European Automated Real-time Gross settlement Express Transfer) system: the real-time gross
settlement system for the euro. It is a decentralised system consisting of 15 national RTGS systems, the ECB payment
mechanism and the Interlinking mechanism.

Tender procedure: a procedure in which the central bank provides liquidity to or withdraws liquidity from the market
on the basis of bids submitted by counterparties in competition with each other. The most competitive bids are satisfied
first until the total amount of liquidity to be provided or withdrawn by the central bank is exhausted.

Tier one asset: a marketable asset fulfilling certain uniform euro area-wide eligibility criteria specified by the ECB.

Tier two asset: a marketable or non-marketable asset for which specific eligibility criteria are established by the national
central banks, subject to ECB approval.

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Trade date (T): the date on which a trade (i.e. an agreement on a financial transaction between two counterparties) is
struck. The trade date might coincide with the settlement date for the transaction (same-day settlement) or precede the
settlement date by a specified number of business days (the settlement date is specified as T + the settlement lag).

Treaty: the Treaty establishing the European Community. It is oftern referred to as the ‘Treaty of Rome’, as amended.

Trigger point: a pre-specified level of the value of the liquidity provided at which a margin call is executed.

Valuation date: the date on which the assets underlying credit operations are valued.

Valuation haircut: a risk control measure applied to underlying assets used in reverse transactions, implying that the
central bank calculates the value of underlying assets as the market value of the assets reduced by a certain percentage
(haircut). The Eurosystem applies valuation haircuts reflecting features of the specific assets, such as the residual maturity.

Variable rate tender: a tender procedure whereby the counterparties bid both the amount of money they want to transact
with the central bank and the interest rate at which they want to enter into the transaction.

Variation margin (marking to market): the Eurosystem requires a certain level of the market value of the underlying
assets used in its liquidity-providing reverse transactions to be maintained over time. This implies that if the value, measured
on a regular basis, of the underlying assets falls below a certain level, the national central bank will require the counterparty
to supply additional assets or cash (i.e. a margin call). Similarly, if the value of the underlying assets, following their
revaluation, exceeds a certain level, the counterparty may retrieve the excess assets or cash. See also Section 6.4.

Volume tender: see fixed rate tender.

Zero coupon bond: a security paying only one cash flow during its life. For the purpose of this document, zero coupon
bonds include securities issued at a discount and securities which deliver a single coupon at maturity. A strip is a special
type of zero coupon bond.

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Selection of counterparties for foreign exchange intervention operations and foreign exchange swaps for
monetary policy purposes

ANNEX 3

The selection of counterparties for foreign exchange intervention operations and foreign exchange swaps for monetary
policy purposes follows a uniform approach irrespective of the chosen organisational set-up for the Eurosystem's external
operations. The selection policy does not entail a substantial departure from existing market standards, as it has been
derived from the harmonisation of the national central banks' current best practices. The selection of counterparties to
Eurosystem foreign exchange intervention operations is based, primarily, on two sets of criteria.

The first set of criteria is inspired by the principle of prudence. A first prudential criterion is creditworthiness, which is
assessed using a combination of different methods (e.g. using credit ratings available from commercial agencies and the
in-house analysis of capital and other business ratios); a second criterion is that the Eurosystem requires all its potential
foreign exchange intervention counterparties to be subject to supervision by a recognised supervisor; and, as a third
criterion, all the Eurosystem's foreign exchange intervention counterparties need to follow high ethical standards and have
a good reputation.

Once the minimum prudence requirement is fulfilled, the second set of criteria inspired by efficiency considerations is
applied. A first efficiency criterion relates to competitive pricing behaviour and the counterparty's ability to handle large
volumes, even in turbulent market conditions. The quality and coverage of information provided by counterparties feature
among other efficiency criteria.

The pool of potential foreign exchange intervention counterparties is sufficiently large and diverse to guarantee the
necessary flexibility when implementing intervention operations. It enables the Eurosystem to choose from among
different intervention channels. In order to be able to intervene efficiently in different geographical locations and time
zones, the Eurosystem can use counterparties in any international financial centre. However, in practice, a substantial
share of the counterparties tend to be located in the euro area. For foreign exchange swaps executed for monetary policy
purposes, the range of counterparties corresponds to the counterparties located in the euro area which are selected for
Eurosystem foreign exchange intervention operations.

The national central banks may apply limit-based systems in order to control credit exposures vis-à-vis individual
counterparties in foreign exchange swaps conducted for monetary policy purposes.

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ANNEX 4

Reporting framework for the money and banking statistics of the European Central Bank (1)

1.

Introduction

Council Regulation (EC) No 2533/98 of 23 November 1998 concerning the collection of statistical information by
the European Central Bank (2) defines the natural and legal persons which are subject to reporting requirements (the
so-called reference reporting population), the confidentiality regime and the appropriate provisions for enforcement
in accordance with Article 5.4 of the Statute of the European System of Central Banks and of the European Central
Bank (Statute of the ESCB). Furthermore, it entitles the ECB to use its regulatory power:

— to specify the actual reporting population;

— to define the ECB's statistical reporting requirements and impose them on the actual reporting population of

participating Member States; and

— to specify the conditions under which the ECB and the national central banks (NCBs) may exercise the right to

verify or to carry out the compulsory collection of statistical information.

2. General considerations

The purpose of Regulation (EC) No 2423/2001 of the European Central Bank of 22 November 2001 concerning the
consolidated balance sheet of the monetary financial institutions sector (ECB/2001/13) (3) is to enable the ECB and, in
accordance with Article 5.2 of the Statute, the NCBs — which carry out the work to the extent possible — to collect
the statistical material required for the fulfilment of the tasks of the European System of Central Banks (ESCB) and, in
its task to define and implement the monetary policy of the Community in accordance with Article
particular,
105 (2), first indent, of the Treaty establishing the European Community (Treaty). The statistical information collected
in accordance with Regulation ECB/2001/13 is used to establish the consolidated balance sheet of the monetary
financial institution (MFI) sector, the principal aim of which is to provide the ECB with a comprehensive statistical
picture of monetary developments covering the aggregated financial assets and liabilities of MFIs located in the
participating Member States, which are viewed as one economic territory.

For statistical purposes the ECB's reporting requirements in the context of the consolidated balance sheet of the
MFI sector are based on three main considerations.

First, the ECB must receive comparable, reliable and up-to-date statistical
information which is collected under
comparable terms and conditions throughout the euro area. Although the data are collected in a decentralised way by
national central banks in accordance with Articles 5.1 and 5.2 of the Statute and, as far as necessary, in combination
with further statistical requirements for Community or national purposes, a sufficient degree of harmonisation and
compliance with minimum reporting standards is required in view of the need to establish a reliable statistical basis
for the definition and conduct of the single monetary policy.

Second, the reporting obligations set out in Regulation ECB/2001/13 must observe the principles of transparency
and legal certainty. The reason for this is that said Regulation is binding in its entirety and directly applicable
throughout the euro area. It imposes obligations directly on natural and legal persons on which the ECB may impose
sanctions whenever the ECB's reporting requirements are not fulfilled (see Article 7 of Regulation (EC) No 2533/98.
The reporting obligations are therefore clearly defined and any discretion exercised by the ECB when verifying or
compulsorily collecting statistical information follows identifiable principles.

Third, the ECB must minimise the reporting burden involved (see Article 3(a) of Regulation (EC) No 2533/98).
Therefore, the statistical material collected by national central banks under Regulation ECB/2001/13 is also used to
calculate the reserve base in accordance with Regulation (EC) No 1745/2003 of the European Central Bank of 12
September 2003 on the application of minimum reserves (ECB/2003/9) (4).

The content of this annex is provided for information purposes only.

(1)
(2) OJ L 318, 27.11.1998, p. 8.
(3) OJ L 333, 17.12.2001, p. 1. This Regulation has replaced Regulation (EC) No 2819/98 of the European Central Bank of 1 December

1998 (ECB/1998/16).
(4) OJ L 250, 2.10.2003, p. 10.

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in general terms, the actual reporting
The articles of Regulation ECB/2001/13 restrict themselves to defining,
population, its reporting obligations and the principles according to which the ECB and the national central banks
normally exercise their competence to verify or compulsorily collect statistical
information. The details of the
statistical information to be reported in order to fulfil the ECB's statistical reporting requirements and the minimum
standards to be followed are specified in Annexes I to IV to Regulation ECB/2001/13.

3. Actual reporting population; list of MFIs for statistical purposes

MFIs comprise resident credit institutions, as defined in Community law, and all other resident financial institutions
whose business is to receive deposits and/or close substitutes for deposits from entities other than MFIs and, for their
own account (at least in economic terms), to grant credit and/or invest in securities. The ECB establishes and
maintains a list of institutions in accordance with this definition and following the classification principles specified
in Annex I to Regulation ECB/2001/13. The competence to establish and maintain this List of MFIs for statistical
purposes lies with the Executive Board of the ECB. The population of MFIs resident in the euro area constitutes the
actual reporting population.

National central banks are entitled to grant derogations to small MFIs if the MFIs which contribute to the monthly
consolidated balance sheet account for at least 95 % of the total MFI balance sheet in each participating Member
State. These derogations enable national central banks to apply the method of “cutting off the tail”.

4.

Statistical reporting obligations

To establish the consolidated balance sheet,
the actual resident reporting population must report statistical
information related to their balance sheet on a monthly basis. Further information is required on a quarterly basis.
The statistical information to be reported is further specified in Annex I to Regulation ECB/2001/13.

The relevant statistical data are collected by the national central banks, which must define the reporting procedures to
be followed. Regulation ECB/2001/13 does not prevent national central banks from collecting, from the actual
reporting population, the statistical information necessary to fulfil the statistical requirements of the ECB as part of
a broader statistical reporting framework which the national central banks establish under their own responsibility in
accordance with Community or national
law or established practice and which serves other statistical purposes.
However, this should be without prejudice to the fulfilment of the statistical requirements set out in Regulation
ECB/2001/13. In specific cases, the ECB may rely on statistical information collected for such purposes to fulfil its
requirements.

The consequence of a derogation being granted by a national central bank as defined above is that the small MFIs
inter alia, only quarterly reporting) which are
concerned are subject to reduced reporting obligations (implying,
compulsory in the context of minimum reserves and are specified in Annex II
to Regulation ECB/2001/13.
Requirements for those small MFIs that are not credit institutions are set out in Annex III to said Regulation.
However, MFIs which have been granted a derogation have the option of fulfilling the full reporting requirements.

5. Use of statistical information under the ECB Regulation on minimum reserves

To minimise the reporting burden and to avoid any duplication in the collection of statistical
information, the
statistical information related to the balance sheet reported by MFIs under Regulation ECB/2001/13 is also used to
calculate the reserve base under Regulation ECB/2003/9.

Indeed, for statistical purposes, the reporting agents have to report data to their respective national central banks in
accordance with the framework of Table 1 below, which is included in Annex I to Regulation ECB/2001/13. In
Table 1, the boxes marked with an “*” are used by the reporting institutions to calculate their reserve base (see Box
14 in Chapter 7 of this publication).

In order to make a correct calculation of the reserve base to which a positive reserve ratio is applied, a detailed
breakdown is required for deposits with an agreed maturity of over two years, for deposits redeemable at notice of
over two years and for repo liabilities of credit institutions vis-à-vis the (“domestic” and “other participating Member
States”) “MFIs”, “credit institutions subject to reserve requirements, ECB and NCBs” and “Central government” sectors,
and vis-à-vis the Rest of the World (RoW).

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TAB

LE 1

Data to be provided

at a monthly frequency

MFIs (3)

A. Domestic

Non-MFIs

MFIs (3)

B. Other participating Member States

Non-MFIs

General government

Other resident sectors

General government

Other resident sectors

BALANCE SHEET ITEMS

of which
credit
institutions
subject to
RRs, ECB
and NCBs

Central
govern-
ment

Other
general
govern-
ment

Total

Other financial
intermediaries
+ financial
auxiliaries
(S.123+S.124)

Insurance
corpora-
tions and
pension
funds
(S.125)

Non-finan-
cial cor-
porations
(S.11)

Households
+ non-
profit
institutions
serving
households
(S.14+S.15)

of which
credit
institutions
subject to
RRs, ECB
and NCBs

Central
govern-
ment

Other
general
govern-
ment

Total

Other financial
intermediaries
+ financial
auxiliaries
(S.123+S.124)

Insurance
corpora-
tions and
pension
funds
(S.125)

Non-finan-
cial cor-
porations
(S.11)

Households
+ non-
profit insti-
tutions
serving
households
(S.14+S.15)

C.
Rest of the world

D.
Not allocated

(a)

(b)

(c)

(d)

(e)

(f)

(g)

(h)

(i)

(j)

(k)

(l)

(m)

(n)

(o)

(p)

(q)

(r)

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*
*

*

*

*
*

*

*

*

*

*

*

*

*

*

*

*
*

*

*

*
*

*

*

*

*

LIABILITIES

8
9

Currency in circulation
Deposits

up to 1 year

over 1 year

9e

Euro

9.1e Overnight

9.2e With agreed maturity

up to 1 year

over 1 and up to 2 years
over 2 years (1)

9.3e Redeemable at notice
up to 3 months (2)

over 3 months
of which over 2 years (4)

9.4e Repos

9x

Foreign currencies

9.1x Overnight

9.2x With agreed maturity

up to 1 year

over 1 and up to 2 years
over 2 years (1)

9.3x Redeemable at notice
up to 3 months (2)

over 3 months
of which over 2 years (4)

9.4x Repos

10 MMFs shares/units

11 Debt securities issued
11e Euro

up to 1 year

over 1 and up to 2 years

over 2 years

11x Foreign currencies
up to 1 year

over 1 and up to 2 years

over 2 years

12 Capital and reserves
13 Remaining liabilities

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*
*

*

*

*
*

*

*

*

*

*

*

*

*

*

*

*
*

*

*

*
*

*

*

*

*

Including administratively regulated deposits.
Including non-transferable sight savings deposits.

(1)
(2)
(3) Credit institutions may report positions vis-à-vis “MFIs other than CIs subject to minimum reserves, ECB and NCBs” rather than vis-à-vis “MFIs” and “CIs subject to minimum
(4) The reporting of this item is volumtary until further notice.

reserves, ECB and NCBs”, provided that no loss of detail is implied and no bold printed positions are affected.

(s)

*

*

*

*

*

*

*

(t)

*

*
*

*

*

*

L 111/76

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Official Journal of the European Union

2.5.2005

2.5.2005

EN

Official Journal of the European Union

L 111/77

A. Domestic

Non-MFIs

Other resident sectors

B. Other participating Member States

Non-MFIs

Other resident sectors

BALANCE SHEET ITEMS

MFIs

General
govern-
ment

Total

Other financial
intermediaries +
financial
auxiliaries
(S.123+S.124)

Insurance cor-
porations and
pension funds
(S.125)

Non-financial
corporations
(S.11)

Households + non-profit institutions
serving households (S.14 + S.15)

Consumer
credit

Lending for
house
purchase

Other
(residual)

MFIs

General
govern-
ment

Total

Other financial
intermediaries +
financial
auxiliaries
(S.123+S.124)

Insurance cor-
porations and
pension funds
(S.125)

Non-financial
corporations
(S.11)

Households + non-profit institutions
serving households (S.14 + S.15)

Consumer
credit

Lending for
house
purchase

Other
(residual)

C.
Rest of the world

D.
Not allocated

(a)

(b)

(c)

(d)

(e)

(f)

(g)

(h)

(i)

(j)

(k)

(l)

(m)

(n)

(o)

(p)

(q)

(r)

(s)

(t)

ASSETS
1

Cash
of which euro

1e

2

2e

3

3e

Loans
up to 1 year

over 1 and up to 5 years

over 5 years

of which euro

Securities other than
shares
Euro

up to 1 year

over 1 and up to 2 years

over 2 years

3x

Foreign currencies
up to 1 year

over 1 and up to 2 years

over 2 years

MMF shares/units

Shares and other equity

Fixed assets

Remaining assets

4

5

6

7

L 111/78

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Official Journal of the European Union

2.5.2005

Reserve base (excluding negotiable instruments),
calculated as the sum of the following columns in Table 1
(Liabilities):
(a)-(b)+(c)+(d)+(e)+(j)-(k)+(l)+(m)+(n)+(s)

DEPOSIT LIABILITIES
(Euro and foreign currencies combined)

TOTAL DEPOSITS

9.1e + 9.1x
9.2e + 9.2x
9.3e + 9.3x
9.4e + 9.4x

of which:

9.2e + 9.2x with agreed maturity

over two years

of which:

9.3e + 9.3x redeemable at notice

over two years

of which:

9.4e + 9.4x repos

Voluntary reporting

Furthermore, depending on the national collection systems and without prejudice to full compliance with the
in Regulation ECB/2001/13, credit
definitions and classification principles of
institutions subject to reserve requirements may alternatively report the data necessary to calculate the reserve base,
except those on negotiable instruments, in accordance with the table below, provided that no bold printed positions
of the previous table are affected.

the MFI balance sheet set out

Annex II to Regulation ECB/2001/13 contains specific and transitional provisions and provisions on mergers
involving credit institutions in respect of the application of the minimum reserve system.

Annex II to Regulation ECB/2001/13 includes, in particular, a reporting scheme for credit institutions in the ‘tail’.
Credit institutions in the tail have to report, as a minimum, quarterly data necessary to calculate the reserve base in
accordance with Table 1a. These institutions ensure that the reporting according to Table 1a is fully consistent with
the definitions and classifications applicable in Table 1. The tail
institutions' reserve base data for three reserve
maintenance periods are based on end-of-quarter data collected by the national central banks.

The annex also includes provisions on reporting on a consolidated basis. On receiving authorisation from the ECB,
credit institutions subject to minimum reserves may carry out consolidated statistical reporting for a group of credit
institutions subject
the institutions
concerned have renounced the benefit of any lump-sum allowance from the reserve requirement. The benefit of the
lump-sum allowance remains, however, for the group as a whole. All the institutions concerned are included
separately in the ECB's List of MFIs.

to minimum reserves within a single national

territory, provided that all

2.5.2005

EN

Official Journal of the European Union

L 111/79

Data required from small credit institutions, to be provided at a quarterly frequency for minimum reserve
requirements

TABLE 1A

Reserve base calculated as the sum of the following columns in
Table 1
(Liabilities):
(a)-(b)+(c)+(d)+(e)+(j)-(k)+(l)+(m)+(n)+(s)

DEPOSIT LIABILITIES
(Euro and foreign currencies combined)

9 TOTAL DEPOSITS

9.1e + 9.1x
9.2e + 9.2x
9.3e + 9.3x
9.4e + 9.4x

of which:

9.2e + 9.2x with agreed maturity

over two years

of which:

9.3e + 9.3x redeemable at notice

over two years

of which:

9.4e + 9.4x repos

NEGOTIABLE INSTRUMENTS
(Euro and foreign currencies combined)

11 DEBT SECURITIES ISSUED

11e + 11x with agreed maturity

up to two years

11 DEBT SECURITIES ISSUED

11e + 11x with agreed maturity

over two years

Voluntary reporting

Outstanding issues, column (t) in Table 1 (Liabilities)

Furthermore, the annex includes provisions to be applied in the case of mergers involving credit institutions. The
terms “merger”, “merging institutions” and “acquiring institution” have the meaning determined in Regulation
ECB/2003/9. For the maintenance period within which a merger takes effect, the reserve requirements of the
acquiring institution are calculated and have to be fulfilled as set out in Article 13 of said Regulation. For consecutive
reserve maintenance periods, the reserve requirements of the acquiring institution are calculated on the basis of a
reserve base and of statistical information in accordance with specific rules (see the table in the Appendix to Annex II
to Regulation ECB/2001/13), if applicable. Otherwise, the normal rules for the reporting of statistical information
and the calculation of reserve requirements, as set out in Article 3 of Regulation ECB/2003/9, apply. Moreover, the
relevant national central bank may authorise the acquiring institution to fulfil
its obligation to report statistical
information through temporary procedures. This derogation from normal reporting procedures must be limited to
the minimum time possible and, in any case, should not exceed six months after the merger has taken effect. This
derogation is without prejudice to the obligation for the acquiring institution to fulfil its reporting obligations in
accordance with Regulation ECB/2001/13 and, if applicable, its obligation to assume the reporting obligations of
merging institutions. The acquiring institution has the obligation to inform the relevant national central bank, once
the intention to merge has become public and in good time before the merger takes effect, of the procedures that it
intends to implement
reserve
requirements.

reporting obligations relating to the determination of

its statistical

to fulfil

L 111/80

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Official Journal of the European Union

2.5.2005

6. Verification and compulsory collection

The ECB itself and the national central banks normally exercise the competence to verify and compulsorily collect
statistical information whenever minimum standards for transmission, accuracy, conceptual compliance and revisions
are not fulfilled. These minimum standards are set out in Annex IV to Regulation ECB/2001/13.

7. Non-participating Member States

As a regulation under Article 34.1 of the Statute does not confer any rights or impose any obligations on Member
States with a derogation (Article 43.1 of the Statute) and on Denmark (Article 2 of the Protocol on certain provisions
relating to Denmark) and is not applicable to the United Kingdom (Article 8 of the Protocol on certain provisions
relating to the United Kingdom of Great Britain and Northern Ireland), Regulation ECB/2001/13 is applicable only in
the participating Member States.

However, Article 5 of the Statute concerning the competence of the ECB and the national central banks in the field
of statistics and Regulation (EC) No 2533/98 are applicable in all Member States. This also implies, together with
Article 10 (ex Article 5) of the Treaty, an obligation on the non-participating Member States to design and
implement at the national level all the measures that they consider appropriate in order to carry out the collection of
statistical information needed to fulfil the ECB's statistical reporting requirements and the timely preparations in the
field of statistics in order for them to become participating Member States. This obligation has been made explicit in
Article 4 and Recital No 17 of Regulation (EC) No 2533/98. For reasons of transparency, this special obligation is
recalled in the recitals of Regulation ECB/2001/13.

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ANNEX 5

Eurosystem websites

Central bank

Website

European Central Bank

www.ecb.int

Nationale Bank van België/Banque Nationale de Belgique

www.nbb.be or www.bnb.be

Deutsche Bundesbank

Bank of Greece

Banco de España

Banque de France

www.bundesbank.de

www.bankofgreece.gr

www.bde.es

www.banque-france.fr

Central Bank and Financial Services Authority of Ireland

www.centralbank.ie

Banca d'Italia

www.bancaditalia.it

Banque centrale du Luxembourg

De Nederlandsche Bank

Oesterreichische Nationalbank

Banco de Portugal

Suomen Pankki — Finlands Bank

www.bcl.lu

www.dnb.nl

www.oenb.at

www.bportugal.pt

www.bof.fi

L 111/82

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Official Journal of the European Union

2.5.2005

Procedures and sanctions to be applied in the event of non-compliance with counterparty obligations

ANNEX 6

1.

Financial penalties

In the event of an infringement by a counterparty of tender rules (1), of bilateral transaction rules (2), of the rules for
the use of underlying assets (3), or of end-of-day procedures and access conditions for the marginal
lending
facility (4), the Eurosystem shall apply financial penalties as follows:

(a) For infringements of rules related to tender operations, bilateral transactions and the use of underlying assets,
for the first and the second infringements that occur within a 12-month period a financial penalty shall be
applied to each infringement. The financial penalties that can be applied shall be computed at the marginal
lending rate plus 2.5 percentage points.

For infringements of rules related to tender operations and bilateral transactions, the financial penalties shall be
calculated on the basis of the amount of collateral or cash which the counterparty could not settle, multiplied
by the coefficient 7/360.

For infringements of rules related to the use of underlying assets, the financial penalties shall be calculated on
the basis of the amount of ineligible assets (or assets that may not be used by the counterparty), which are
either: (i) provided by the counterparty to a national central bank or the ECB, or (ii) not removed by the
counterparty after 20 working days following an event after which the eligible assets become ineligible or may
no longer be used by the counterparty, multiplied by the coefficient 1/360.

(b) The first time the rules for end-of-day procedures or for access to the marginal lending facility are infringed, the
financial penalties that can be applied shall be computed at 5 percentage points. In the event of repeated
infringements, the penalty interest rate shall be increased by a further 2,5 percentage points each time this
occurs within a 12-month period, calculated on the basis of the amount of the unauthorised access to the
marginal lending facility.

2.

Non-financial penalties

The Eurosystem shall suspend a counterparty for infringements of rules related to tender operations and bilateral
transactions, and of rules for underlying assets as set out below:

2.1. S u s p e n s i o n a f t e r
t r a n s a c t i o n s

i n f r i n g e m e n t s o f

r u l e s

r e l a t e d t o t e n d e r o p e r a t i o n s a n d b i l a t e r a l

the Eurosystem shall suspend
If a third infringement of
counterparties from the subsequent open market operation(s) of the same type and executed under the same
procedures, to be initiated during a certain period, in addition to a financial penalty calculated in accordance with
the rules outlined in Section 1. The suspension shall be applied in accordance with the following scale:

the same type occurs within a 12-month period,

(a)

if the amount of non-delivered collateral or cash is up to 40 % of the total collateral or cash to be delivered on
the occasion of the third infringement, a suspension of one month shall be applied;

(b)

if the amount of non-delivered collateral or cash is between 40 % and 80 % of the total collateral or cash to be
delivered on the occasion of the third infringement, a suspension of two months shall be applied; and

(1)

(2)

(3)

(4)

This applies if a counterparty is unable to transfer a sufficient amount of underlying assets to settle the amount of liquidity it has been
allotted in a liquidity-providing operation or if it is unable to deliver a sufficient amount of cash to settle the amount it has been
allotted in a liquidity-absorbing operation.
This applies if a counterparty is unable to deliver a sufficient amount of eligible underlying assets or if it is unable to deliver
a sufficient amount of cash to settle the amount agreed in bilateral transactions.
This applies if a counterparty is using assets that are or have become ineligible (or that it may not use) to secure an outstanding
credit.
This applies if a counterparty has a negative balance on the settlement account at the end of the day and does not fulfil the access
conditions for the marginal lending facilities.

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(c)

if the amount of non-delivered collateral or cash is between 80 % and 100 % of the total collateral or cash to
be delivered on the occasion of the third infringement, a suspension of three months shall be applied.

These financial penalties and suspension measures shall also apply, without prejudice to subsection 2.3 below, to
any other successive infringement during each 12-month period.

2.2. S u s p e n s i o n a f t e r i n f r i n g e m e n t s o f r u l e s f o r u n d e r l y i n g a s s e t s

If a third infringement occurs within a 12-month period, the Eurosystem shall suspend the counterparty from the
subsequent open market operation, in addition to a financial penalty calculated in accordance with Section 1 above.

These financial penalties and suspension measures shall also apply, without prejudice to subsection 2.3 below, to
any other successive infringement during each 12-month period.

2.3. S u s p e n s i o n f r o m a c c e s s t o a l l f u t u r e m o n e t a r y p o l i c y o p e r a t i o n s f o r a c e r t a i n p e r i o d i n

e x c e p t i o n a l c a s e s

In exceptional cases where required on account of the seriousness of the case(s) of non-compliance, and taking into
account in particular the amounts involved, the frequency or the duration of the cases of non-compliance,
consideration could be given, in addition to a financial penalty calculated in accordance with Section 1 above, to
the suspension of a counterparty from access to all future monetary policy operations for a period of three months.

2.4.

I n s t i t u t i o n s l o c a t e d i n o t h e r M e m b e r S t a t e s

The Eurosystem may also decide whether the suspension measure proposed to be taken vis-à-vis the non-compliant
counterparty should also apply to branches of the same institution located in other Member States.’