Opinion of the European Central Bank of 1 April 2005 at the request of Lietuvos bankas on draft rules on minimum reserve requirements for credit institutions (CON/2005/8)
Date: 2005-04-01
Institutions: European Central Bank
Subjects: Eurosystem, Lithuania, credit institution, credit union, euro, reserves

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 1 April 2005 

at the request of Lietuvos bankas on draft rules on minimum reserve 

requirements for credit institutions 

(CON/2005/8) 

Introduction 

1. 

On 14 February 2005 the European Central Bank (ECB) received a request from Lietuvos bankas 

for an opinion on draft rules on  minimum reserve requirements for credit institutions (hereinafter 

the ‘draft rules’). Lietuvos bankas is the national authority that will adopt the draft rules.  

2. 

The  ECB’s  competence 

to  deliver  an  opinion 

is  based  on  Article  2(2)  of  Council 

Decision 98/415/EC of 29 June 1998 on the consultation of the European Central Bank by national 
authorities  regarding  draft  legislative  provisions1,  as  the  draft  rules  relate  to  instruments  of 

monetary  policy  of  a  non-participating  Member  State.  In  accordance  with  the  first  sentence  of 

Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has 

adopted this opinion.   

3. 

The  main  objective  of  the  draft  rules  is  to  improve  compatibility  between  the  minimum  reserve 

system  in  Lithuania  and  the  Eurosystem’s  minimum  reserve  system.  In  particular,  the  draft  rules 

propose: (a) that minimum reserves shall be calculated and verified according to the balance sheet 

statistical reports of monetary financial institutions; (b) that all minimum reserves shall be held in 

the  national  currency  (the  litas);  and  (c)  that  the  balances  of  credit  institutions  held  as  minimum 

reserves shall be remunerated. At the same time, Lietuvos bankas wishes to retain certain specific 

features of the national system for minimum reserves in Lithuania. In addition, Lietuvos bankas has 

requested  the  ECB  to  clarify  whether  the  Eurosystem  minimum  reserve  requirements  would  be 

applicable to credit unions established in Lithuania, once Lithuania has adopted the euro.   

4. 

The ECB notes that the legal framework underlying the Eurosystem’s minimum reserve system is 

laid  down  in:  (i)  Article  19  of  the  Statute  of  the  European  System  of  Central  Banks  and  the 

European  Central  Bank,  (ii)  Council  Regulation  (EC)  No  2531/98  of  23  November  1998 
concerning  the  application  of  minimum  reserves  by  the  European  Central  Bank2,  and 

(iii) Regulation (EC) No 1745/2003 of the European Central Bank on the application of minimum 

1  
2  

OJ L 189, 3.7.1998, p. 42. 
OJ L 318, 27.11.1998, p. 1. 

 
 
 
                                                      
reserves  (ECB/2003/9)3.  The  purpose  of  these  legal  acts,  which  are  directly  applicable  to  and 

binding  on  credit  institutions,  is  to  ensure  that  the  terms  and  conditions  for  the  Eurosystem’s 

minimum  reserve  system  are  uniform  throughout  the  euro  area.  Taking  into  account  the 

aforementioned  legal  framework  for  the  Eurosystem’s  reserve  requirements,  the  ECB  wishes  to 

provide the following comments on the draft rules.  

General observations 

5. 

First, in the course of preparing for the introduction of the euro in Lithuania, Lietuvos bankas will 

need  to  examine  whether  the  Eurosystem’s  requirements  can  be  fulfilled  effectively  and  whether 

the  necessary  measures  have  been  adopted  in  Lithuania  to  ensure  that  the  authorities  have  the 

requisite powers, under Lithuanian law, to assist and cooperate with the ECB in order to collect and 

verify the information necessary for the Eurosystem’s minimum reserve system.  

6. 

Second,  because  the  Eurosystem’s  minimum  reserve  system  is  highly  dependent  on  the 

Eurosystem’s  statistical  reporting  requirements  for  its  data,  and  because  any  changes  to  the 

statistical  reporting  requirements  will  have  a  direct  influence  on  the  size  of  minimum  reserve 

holdings, a key element for achieving consistency between the Lithuanian minimum reserve system 

and  that  of  the  Eurosystem  is  the  introduction  into  Lithuanian  law  of  statistical  reporting 

requirements corresponding to those of the Eurosystem.  

7. 

Third, the ECB will have to consider introducing transitional arrangements for the application of 

the Eurosystem’s minimum reserve system for the introduction of the euro in Lithuania, as was the 

case  when  Greece  adopted  the  euro  on  1  January  2001.  This  would  involve  a  transitional 

maintenance period for credit institutions located in Lithuania as well as transitional provisions for 

credit institutions located in other participating Member States.  

8. 

Taking  these  general  observations  into  account,  the  ECB  welcomes  the  initiative  of  Lietuvos 

bankas to review the minimum reserve system in Lithuania with a view to bringing it into line with 

the  Eurosystem’s  minimum  reserve  system.  The  ECB  notes  that,  although  non-participating 

Member States retain their powers in the field of monetary policy, it is nevertheless beneficial to 

gradually  achieve  consistency  with  Eurosystem  standards  so  that  credit  institutions  can  become 

acquainted with the minimum reserve requirements that will apply when the euro is introduced in 

Lithuania.  

9. 

The  ECB  is  also  aware  that  Lietuvos  Respublikos  Seimas  (Lithuania’s  Parliament)  is  currently 

considering a draft law to amend the Credit Unions Act. This opinion is based on the law currently 

in force, and does not take account of any proposed amendment to the Credit Unions Act.   

Applicability of the Eurosystem’s minimum reserve requirements to Lithuanian credit unions 

10.  Concerning  the  query  of  Lietuvos  bankas  about  the  applicability  of  the  Eurosystem’s  minimum 

reserve requirements to credit unions established in Lithuania upon the introduction of the euro in 

3  

OJ L 250, 2.10.2003, p. 10. 

2 

                                                      
Lithuania, the ECB notes at the outset that, in a number of euro area Member States, credit unions 

are  currently  subject  to  Eurosystem  minimum  reserve  requirements.  The  ECB  notes  that 

Article 2(1) of Regulation EC No 1745/2003 provides that the following categories of institutions 

are  subject  to  minimum  reserve  requirements:  (a)  credit  institutions  as  defined  in  the  first 

subparagraph  of  Article  1(1)  of  Directive  2000/12/EC  of  the  European  Parliament  and  of  the 

Council  of  20  March  2000  relating  to  the  taking-up  and  pursuit  of  the  business  of  credit 
institutions4  (hereinafter  the  ‘Consolidated  Banking  Directive’),  other  than  participating  national 

central  banks  (NCBs);  and  (b)  branches,  as  defined  in  Article  1(3)  of  the  Consolidated  Banking 

Directive,  of  credit  institutions  as  defined  in  the  first  subparagraph  of  Article  1(1)  of  the  same 

Directive, other than participating NCBs. The first subparagraph of Article 1(1) of the Consolidated 

Banking  Directive  defines  a  credit  institution  as  ‘an  undertaking  whose  business  is  to  receive 

deposits  or  other  repayable  funds  from  the  public  and  to  grant  credits  for  its  own  account’. 

Article 2(3) of the Consolidated Banking Directive exempts certain institutions from the scope of 

its application, including in particular the NCBs of Member States, post office giro institutions and 
specifically listed national entities, including5 credit unions established in Lithuania, with the sole 

exception of the Central Credit Union. However, the fact that Lithuanian credit unions are exempt 

for  prudential  supervision  purposes  from  the  scope  of  application  of  the  Consolidated  Banking 

Directive  does  not  automatically  imply  that  they  would  also  be  exempt  from  the  Eurosystem’s 

reserve requirements established for monetary policy purposes. Indeed, the ECB considers that in 

order to apply the Eurosystem’s reserve requirements it is necessary to carry out a material test as 

to whether an institution fulfils the criteria laid down in the first subparagraph of Article 1(1) of the 

Consolidated Banking Directive (i.e. whether its business is to receive deposits or other repayable 

funds from the public and to grant credits for its own account). Therefore, the ECB has examined 

whether  Lithuanian  credit  unions  fulfil  the  criteria  laid  down  in  the  first  subparagraph  of 

Article 1(1) of the Consolidated Banking Directive. 

11.  Regarding  the  nature  of  the  business  of  a  Lithuanian  credit  union  and  whether  this  is  ‘to  receive 

deposits or other repayable funds from the public’ within the meaning of the Consolidated Banking 
Directive, the ECB notes that, under the Lithuanian Act on credit unions6 (hereinafter the ‘Credit 

Unions Act’), Lithuanian credit unions may receive deposits from various persons, including their 

members  and  associated  members,  as  well  as  from  associations  of  credit  unions,  associations, 

religious  communities/associations,  trade  union  organisations,  charities  registered  in  Lithuania, 

institutions authorised by the Government of Lithuania and/or local authorities, and international or 

foreign charities. Also, before a credit union joins the Central Credit Union, it may receive deposits 

from other credit unions which are not members of the Central Credit Union. The ECB notes that, 

under  the  Credit  Unions  Act,  a  variety  of  persons  may  become  members  of  a  credit  union, 

4  
5  
6  

OJ L 126, 26.5.2000, p. 1, as last amended by Directive 2004/69/EC (OJ L 125, 28.4.2004, p. 44). 
Under the provisions of Annex II, Chapter 3 of the Accession Treaty 2003.  
Lithuanian Official Gazette, 1995, No 26-578, as amended.  
The ECB also understands that the Act on credit unions is a special law in relation to the Act on co-operative companies 
(co-operatives). Lithuanian Official Gazette, 1993, No 20-488, as amended.  

3 

                                                      
 
including  natural  persons  who  are  permanently  resident  in  Lithuania  and  certain  legal  entities 

registered in Lithuania (e.g., associations, organisations of trade unions, religious communities and 

associations and agricultural cooperatives). The ECB also notes that, under the Credit Unions Act, 

a credit union may restrict its membership by reference to various criteria (e.g., employment in the 

same entity, membership of the same professional group or organisation, or residence in the same 

township  or  ward).  Also,  a  credit  union  may  accept  a  variety  of  associated  members,  including 

individual (personal) enterprises, economic partnerships, agricultural cooperatives, certain private 

companies controlled by a member(s) of a credit union, small enterprises, and natural persons who 

reside, work or study in the ward in which the credit union has its headquarters. The ECB further 

notes  that,  under  the  Credit  Unions  Act,  deposits  paid  into  credit  unions  are  subject  to  the 

Lithuanian deposit-guarantee scheme. 

12.  Regarding  whether  it  is  the  business  of  a  Lithuanian  credit  union  to  ‘grant  credits  for  its  own 

account’ within the meaning of the Consolidated Banking Directive, the ECB notes that, under the 

Credit Unions Act, credit unions established in Lithuania may grant loans to their members for the 

purposes  specified  in  the  statutes  of  the  credit  unions.  The  ECB  considers  that  the  restriction 

allowing loans to be granted only for the purposes specified in the statutes of credit unions may not 

be  considered  as  restricting  the  capacity  of  credit  unions  to  ‘grant  credits  for  their  own  account’ 

within  the  meaning  of  the  Consolidated  Banking  Directive.  The  ECB  also  notes  that,  under  the 

Credit  Unions  Act,  credit  unions  are  entitled  to  engage  in  other  activities  appropriate  for  credit 

institutions.  The  ECB  further  notes  that  the  Credit  Unions  Act  refers  to  credit  unions  as  ‘credit 

institutions’. On the basis of the foregoing, the ECB considers that, under Lithuanian law currently 

in force, credit unions established in Lithuania may engage in certain activities which are common 

to credit institutions. In particular, they may receive deposits and grant loans on their own account.  

13.  However, the question remains whether Lithuanian credit unions receive deposits ‘from the public’ 

within the meaning of the Consolidated Banking Directive. The ECB understands that, in practice, 

certain Lithuanian credit unions may be rather small, have a narrow membership base and receive 

deposits from a restricted group. Yet, given that the compass of potential depositors in Lithuanian 

credit unions is wide, it is difficult to argue that Lithuanian credit unions do not receive deposits 

‘from the public’, within the meaning of the Consolidated Banking Directive.  

14. 

In light of the above, the ECB considers that Lithuanian credit unions fall under the definition of a 

credit institution within the meaning of the Consolidated Banking Directive, and will therefore be 

subject to the Eurosystem minimum reserve requirements when Lithuania adopts the euro.  

The treatment of subscriptions to the capital of Lithuanian credit unions  

15.  The  ECB  notes  that,  under  the  Credit  Unions  Act,  members  of  Lithuanian  credit  unions  may 

withdraw from a credit union upon giving three months’ written notice. The ECB understands that, 

upon such withdrawal, funds that have been paid as a subscription to the credit union’s capital may 

be repaid under the conditions laid down in the Credit Unions Act. Consistent with this, the period 

4 

within  which  the  repayments  must  be  made  is  determined  by  taking  into  account  the  financial 

position  and  liquidity  of  the  credit  union  in  question.  In  any  event,  the  capital  has  to  be  repaid 

within 12 months from the date of a member’s withdrawal. In view of these provisions, it has to be 

considered whether such funds paid to the credit union should be regarded as being in the nature of 

deposits  and,  therefore,  as  liabilities  against  which  minimum  reserves  have  to  be  held  with 

Lietuvos bankas. This question has not been explicitly decided in the Eurosystem minimum reserve 

system  and  is  subject  to  ongoing  analysis  and  discussion.  The  ECB  will  provide  any  relevant 

information to Lietuvos bankas well in advance of the date on which the Eurosystem’s minimum 

reserve system becomes applicable to Lithuanian credit unions, thus ensuring a smooth transition to 

the new minimum reserve system. 

Technical comments 

16.  With regard to the detailed provisions of the draft rules, the ECB would like to offer the following 

technical  comments  which  Lietuvos  bankas  may  wish  to  reflect  upon  already  at  this  preparatory 

stage. 

17.  Section 18 of the draft rules provides that, where a credit institution frequently revises its data on 

the reserve base or on the required reserves, Lietuvos bankas may restrict its ability to make further 

revisions. The ECB notes that, in the Eurosystem’s minimum reserve system, revisions to data on 

the reserve base are generally not excluded given that such revisions can help improve the quality 

of data. Nevertheless, systematic reporting of incorrect data may be regarded, for the purposes of 

imposing sanctions for infringements of balance sheet statistical reporting requirements, as ‘serious 

misconduct’, for which an increased sanction may be imposed (see Notice of the European Central 

Bank  on  the  imposition  of  sanctions  for  infringement  of  balance  sheet  statistical  reporting 
requirements (2004/C 195/10)7). In this regard, the ECB notes that, under Section 39 of the draft 

rules,  taking  into  account  the  frequency  of  violations  and/or  the  their  impact  on  a  credit 

institution’s  reserve  base  and/or  required  reserves,  Lietuvos  bankas  may  impose  an  increased 

penalty  if,  inter  alia,  it  becomes  evident  that  the  credit  institution  has  reported  incorrect  or 

incomplete data.  

18.  The  ECB  draws  attention  to  the  fact  that  the  penalties  that  Lietuvos  bankas  may  impose  under  

Section 39 of the draft rules concern failure to comply with statistical reporting requirements (e.g., 

incorrect  or  incomplete  reported  data,  or  where  the  form  of  the  report  does  not  meet  the  set 

requirements,  or  if  verification  of  the  accuracy  of  reported  data  is  hindered).  Although  failure  to 

comply  with  statistical  reporting  requirements  directly  influences  the  subsequent  setting  of  the 

minimum  reserve  requirement,  the  ECB  itself  clearly  distinguishes  between  the  two.  The  ECB’s 

specific  sanctioning  principles  have  been  set  out  in  two  distinct  notices,  Notice  of  the  European 

Central Bank on the imposition of sanctions for infringements of balance sheet statistical reporting 

7  

OJ C 195, 31.7.2004, p. 8. 

5 

                                                      
requirements  (2004/C  195/10)8  and  Notice  of  the  European  Central  Bank  on  the  imposition  of 
sanctions for breaches of the obligation to hold minimum reserves (2000/C 39/04)9. 

19.  Section 41 of the draft rules provides that, upon the failure of a credit institution to comply with 

reserve  requirements,  Lietuvos  bankas  may  increase  its  reserve  requirement  by  up  to  three  times 

the  shortfall  of  the  reserve  requirement  over  the  preceding  maintenance  period.  In  the  context  of 

the  Eurosystem’s  minimum  reserve  system,  such  a  measure  would  not  necessarily  amount  to  a 

sanction on a credit institution since the reserve holdings are remunerated at close-to-market rates. 

Moreover,  some  credit  institutions  might  benefit  from  higher  reserve  requirements,  by  using  the 

additional reserves as a buffer to offset their own liquidity shocks within the maintenance period. 

Although  the  measure  is  similar  to  the  sanctioning  provisions  laid  down  in  Article  7  of  Council 

Regulation  (EC)  No  2531/98,  there  is  an  important  difference  in  that  Council  Regulation  (EC) 

No 2531/98 stipulates that such a deposit of up to three times the shortfall on the minimum reserve 

requirement shall be a non-interest-bearing deposit, thereby introducing a punitive element. 

20.  This opinion will be published on the ECB’s website. 

Done at Frankfurt am Main, 1 April 2005. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

8  
9  

OJ C 195, 31.7.2004, p. 8. 
OJ C 39, 11.2.2000, p. 3. 

6