Guideline of the European Central Bank of 31 August 2006 amending Guideline ECB/2000/7 on monetary policy instruments and procedures of the Eurosystem (ECB/2006/12)
Date: 2006-08-31
Institutions: European Central Bank
Subjects: European Central Bank, central bank, financial legislation, single monetary policy

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II

(Acts whose publication is not obligatory)

EUROPEAN CENTRAL BANK

GUIDELINE OF THE EUROPEAN CENTRAL BANK

of 31 August 2006

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

(ECB/2006/12)

(2006/905/EC)

THE GOVERNING COUNCIL OF THE EUROPEAN CENTRAL BANK,

HAS ADOPTED THIS GUIDELINE:

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

Article 1

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:

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

Annex I to Guideline ECB/2000/7 of 31 August 2000 on mon-
etary policy instruments and procedures of the Eurosystem (1) is
replaced by the text set out in the Annex to this Guideline.

(1)

(2)

(3)

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

The ECB has the authority to establish the necessary guide-
lines to implement the Eurosystem’s single monetary
policy and the NCBs have an obligation to act in accor-
dance with such guidelines.

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 20 Sep-
tember 2006 at the latest.

Article 3

Entry into force

Recent changes to the definition and implementation of
the Eurosystem’s single monetary policy, in particular the
introduction of non-marketable assets in the single list of
collateral eligible for Eurosystem credit operations, need
to be reflected appropriately by replacing Annex I to the
ECB Guideline on monetary policy instruments and pro-
cedures of the Eurosystem that is currently in force,

This Guideline shall enter into force two days after its adoption.
Article 1 shall apply from 1 January 2007.

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

ECB/2005/17 (OJ L 30, 2.2.2006, p. 26).

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Article 4

Addressees

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

Done at Frankfurt am Main, 31 August 2006.

For the Governing Council of the ECB
The President of the ECB
Jean-Claude TRICHET

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‘The implementation of monetary policy in the euro area — General documentation on Eurosystem monetary
policy instruments and procedures

ANNEX

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CONTENTS

Introduction

CHAPTER 1

Overview of the monetary policy framework

1.1.

1.2.

1.3.

1.3.1.

1.3.2.

1.3.3.

1.4.

1.5.

1.6.

The European System of Central Banks

Objectives of the Eurosystem

Eurosystem monetary policy instruments

Open market operations

Standing facilities

Minimum reserves

Counterparties

Underlying assets

Modifications to the monetary policy framework

CHAPTER 2

Eligible counterparties

2.1.

2.2.

2.3.

2.4.

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

Open market operations

3.1.

3.1.1.

3.1.2.

3.1.3.

3.1.4.

3.1.5.

3.2.

3.3.

3.4.

3.5.

Reverse transactions

General considerations

Main refinancing operations

Longer-term refinancing operations

Fine-tuning reverse operations

Structural reverse operations

Outright transactions

Issuance of ECB debt certificates

Foreign exchange swaps

Collection of fixed-term deposits

CHAPTER 4

Standing facilities

4.1.

4.2.

The marginal lending facility

The deposit facility

CHAPTER 5

Procedures

5.1.

5.1.1.

5.1.2.

5.1.3.

5.1.4.

Tender procedures

General considerations

Tender operations calendar

Announcement of tender operations

Preparation and submission of bids by counterparties

8

9

9

9

9

9

11

11

11

11

11

12

12

12

13

14

15

15

15

15

16

16

17

17

18

19

20

21

21

22

24

24

24

25

27

28

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5.1.5.

5.1.6.

5.2.

5.3.

5.3.1.

5.3.2.

5.3.3.

Tender allotment procedures

Announcement of tender results

Procedures for bilateral operations

Settlement procedures

General considerations

Settlement of open market operations

End-of-day procedures

CHAPTER 6

Eligible assets

6.1.

6.2.

6.2.1.

6.2.2.

6.2.3.

6.3.

6.3.1.

6.3.2.

6.3.3.

6.3.4.

6.3.5.

6.4.

6.4.1.

6.4.2.

6.4.3.

6.5.

6.6.

6.6.1.

6.6.2.

General considerations

Eligibility specifications for underlying assets

Eligibility criteria for marketable assets

Eligibility criteria for non-marketable assets

Additional requirements for the use of eligible assets

Eurosystem credit assessment framework

Scope and elements

Establishment of high credit standards for marketable assets

Establishment of high credit standards for non-marketable assets

Acceptance criteria for credit assessment systems

Performance monitoring of credit assessment systems

Risk control measures

General principles

Risk control measures for marketable assets

Risk control measures for non-marketable assets

Valuation principles for underlying assets

Cross-border use of eligible assets

Correspondent central banking model

Links between securities settlement systems

CHAPTER 7

Minimum reserves

7.1.

7.2.

7.3.

7.4.

7.5.

7.6.

ANNEXES

1.

2.

3.

4.

5.

6.

7.

General considerations

Institutions subject to minimum reserve requirements

Determination of minimum reserves

Maintenance of reserve holdings

Reporting, acknowledgement and verification of the reserve base

Non-compliance with minimum reserve obligations

Examples of monetary policy operations and procedures

Glossary

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

The reporting framework for the money and banking statistics of the European Central Bank

The Eurosystem websites

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

Creation of valid security over credit claims

29

31

32

33

33

34

34

35

35

35

35

38

39

42

42

43

44

46

48

49

49

50

52

53

54

54

56

57

57

57

58

59

60

61

62

71

79

80

86

87

89

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LIST OF BOXES, CHARTS AND TABLES

Boxes

1.

2.

3.

4.

5.

6.

7.

8.

9.

Issuance of ECB debt certificates

Foreign exchange swaps

Operational steps for tender procedures

Allotment of fixed rate tenders

Allotment of variable rate tenders in euro

Allotment of variable rate foreign exchange swap tenders

Risk control measures

Calculation of margin calls

Reserve base and reserve ratios

10.

Calculation of the remuneration of holdings of required reserves

Charts

1.

2.

3.

4.

Tables

1.

2.

3.

4.

5.

6.

7.

8.

9.

Normal time frame for the operational steps in standard tenders (times are stated in ECB time (CET))

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

Implicit credit assessments for euro area regional government, local authority and public sector entity
issuers, debtors or guarantors without an ECAI credit assessment

Liquidity categories for marketable assets

Levels of valuation haircuts applied to eligible marketable assets in relation to fixed coupon and zero
coupon instruments

Levels of valuation haircuts applied to eligible marketable inverse floating rate debt instruments

Levels of valuation haircuts applied to credit claims with fixed interest payments

19

20

25

29

30

31

49

52

59

60

26

26

54

55

10

26

33

40

44

50

51

51

53

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ABBREVIATIONS

CCBM

correspondent central banking model

CET

CIs

CRD

CSD

EC

ECAF

ECAI

ECB

EEA

EEC

Central European Time

credit institutions

Capital Requirements Directive

central securities depository

European Community

Eurosystem credit assessment framework

external credit assessment institution

European Central Bank

European Economic Area

European Economic Community

ESA 95

European System of Accounts 1995

ESCB

EU

ICAS

ICSD

IDC

IRB

ISIN

MFI

MMF

NCB

PD

PSE

European System of Central Banks

European Union

in-house credit assessment system

international central securities depository

intraday credit

internal ratings-based system

International Securities Identification Number

monetary financial institution

money market fund

national central bank

probability of default

public sector entity

RMBD

retail mortgage-backed debt instrument

RoW

RT

RTGS

SSS

rest of the world

rating tool

real-time gross settlement

securities settlement system

TARGET

Trans-European Automated Real-time Gross settlement Express Transfer system

UCITS

undertaking for collective investment in transferable securities

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Introduction

This document presents the operational framework chosen by the Eurosystem (*) 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 relation-
ship 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 avail-
able to counterparties. Chapter 5 specifies procedures applied in the execution of monetary policy operations. In Chapter
6, the eligibility criteria for underlying assets in monetary policy operations are defined. Chapter 7 presents the Eurosys-
tem’s minimum reserve system.

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 bank-
ing statistics of the European Central Bank, a list of the Eurosystem websites, a description of the procedures and sanc-
tions to be applied in the event of non-compliance with counterparty obligations and additional legal requirements for the
creation of valid security over credit claims when these are used as collateral with the Eurosystem.

(*) 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

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 cen-
tral banks of the European Union (EU) Member States (1). 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 mon-
etary 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 (2) for carrying
out the operations which form part of the tasks of the Eurosystem. The Eurosystem’s monetary policy operations
are executed under uniform terms and conditions in all Member States (3).

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 economic
policies in the European Community. In pursuing its objectives, the Eurosystem has to act in 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 mini-
mum 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 (4). 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):

(1)

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.

(2) 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.

(3) Throughout this document, the term ‘Member State’ refers to a Member State which has adopted the single currency in accordance with

the Treaty.

(4) 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 coun-
terparties to participate in quick tenders. The term ‘bilateral procedures’ refers to any case in which the Eurosystem conducts a transac-
tion 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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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 refinanc-
ing operations

Reverse transac-
tions

Longer-term
refinancing
operations

Fine-tuning
operations

Reverse transac-
tions

Reverse transac-
tions
Foreign
exchange swaps

-

-

One week

Weekly

Standard tenders

Three months

Monthly

Standard tenders

Non-
standardised

Non-regular

Quick tenders

Reverse transac-
tions
Collection of
fixed-term
deposits
Foreign
exchange swaps

Outright pur-
chases

Outright sales

-

Non-regular

Structural
operations

Reverse transac-
tions

Issuance of debt
certificates

Standardised/
non-
standardised

Regular and
non-regular

Outright pur-
chases

Outright sales

-

Non-regular

Bilateral proce-
dures

Bilateral proce-
dures

Standard tenders

Bilateral proce-
dures

Standing facilities

Marginal lend-
ing facility

Reverse transac-
tions

-

Overnight

Deposit facility

-

Deposits

Overnight

Access at the discretion of counter-
parties

Access at the discretion of counter-
parties

— 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 objectives of
the Eurosystem’s open market operations and provide the bulk of refinancing to the financial sector.

— 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 nor-
mally 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 trans-
actions, 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 opera-
tions 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). Struc-
tural 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 transac-
tions are executed through bilateral procedures.

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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 coun-
terparties’ access to the facility, apart from the requirement to present sufficient underlying assets. The inter-
est 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 aver-
aging 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 inter-
vention operations which are located in the euro area.

1.5.

Underlying assets

Pursuant to Article 18.1 of the Statute of the ESCB, all Eurosystem credit operations (i.e. liquidity-providing mon-
etary policy operations and intraday credit) have to be based on adequate collateral. The Eurosystem accepts a
wide range of assets to underlie its operations. The Eurosystem has developed a single framework for eligible col-
lateral common to all Eurosystem credit operations (also referred to as the ‘Single List’). On 1 January 2007, this
single framework will replace the two-tier system that has been in place since the start of Economic and Monetary
Union. The single framework covers marketable and non-marketable assets that fulfil uniform euro area-wide eli-
gibility criteria specified by the Eurosystem. No distinction is made between marketable and non-marketable assets
with regard to the quality of the assets and their eligibility for the various types of Eurosystem monetary policy
operations, except that non-marketable assets are not used by the Eurosystem for outright transactions. All eligible
assets may be used on a cross-border basis by means of the correspondent central banking model (CCBM) and, in
the case of marketable assets, through eligible links between EU securities settlement systems (SSSs).

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.

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CHAPTER 2

ELIGIBLE COUNTERPARTIES

2.1.

General eligibility criteria

Counterparties for Eurosystem monetary policy operations must fulfil certain eligibility criteria (1). 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 opera-
tional and prudential requirements:

— Only institutions subject to the Eurosystem’s minimum reserve system according to Article 19.1 of the Stat-
ute 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 Eurosys-
tem 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 (2). However, financially sound institutions subject to non-harmonised
national supervision of a comparable standard can also be accepted as counterparties, e.g. branches estab-
lished 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 arrange-
ments 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 ten-
ders 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 for-
eign 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 col-
lection of fixed-term deposits), each national central bank selects a set of counterparties from among the institu-
tions 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.

(1) For outright transactions, no restrictions are placed a priori on the range of counterparties.
(2) Harmonised supervision of credit institutions is based on Directive 2006/48/EC of the European Parliament and of the Council of
14 June 2006 relating to the taking up and pursuit of the business of credit institutions (recast), Official Journal of the European Union
(OJ), L 177 of 30 June 2006, page 1.

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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 in each operation with all of its fine-tuning counterparties, the selection of counterparties in this Mem-
ber State will be based on a rotation scheme in order to ensure equitable access.

The Governing Council of the ECB can decide whether, under exceptional circumstances, fine-tuning bilateral opera-
tions may be carried out by the ECB itself. If the ECB were to carry out bilateral operations, the selection of coun-
terparties 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 (3), 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) (4), Council Regulation (EC) No 2531/98 of 23 November 1998 concerning the application of mini-
mum reserves by the European Central Bank (5), 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) (6), 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 above-
mentioned 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 counter-
party 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).

(3) OJ L 318 of 27 November 1998, page 4.
(4) OJ L 264 of 12 October 1999, page 21.
(5) OJ L 318 of 27 November 1998, page 1.
(6) OJ L 250 of 2 October 2003, page 10.

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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.

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.

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CHAPTER 3

OPEN MARKET OPERATIONS

Open market operations play an important role in the Eurosystem’s monetary policy. They are used for 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 cat-
egories of operations, whereas debt certificates may be used for structural absorption operations. In addition, the Eurosys-
tem 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

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 agree-
ments 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 trans-
actions for structural and fine-tuning operations.

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, an assignment or
a charge) which apply in different jurisdictions.

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 collat-
eralised 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 reverse operations;

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— they are executed regularly each week (1);

— they normally have a maturity of one week (2);

— 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

— marketable and non-marketable 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 reverse operations;

— they are executed regularly each month (1);

— they normally have a maturity of three months (2);

— 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

— marketable and non-marketable 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 flex-
ibility 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;

(1) The main and the longer-term refinancing operations are executed in accordance with the Eurosystem’s pre-announced tender opera-
tions 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).

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

Member States.

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— their frequency is not standardised;

— their maturity is not standardised;

— 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 Govern-
ing 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 counterpar-

ties to participate in fine-tuning reverse operations;

and

— marketable and non-marketable 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 adjust-
ing 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 struc-

tural reverse operations;

and

— marketable and non-marketable assets (as specified in Chapter 6) are eligible as underlying assets for struc-

tural reverse operations.

3.2. Outright transactions

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.

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 instru-
ment used in the transaction.

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.

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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;

— 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 Council
of the ECB can decide whether, under exceptional circumstances, fine-tuning outright operations may be
executed by the ECB);

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

and

— only marketable assets (as specified in Chapter 6) are used as underlying assets in outright transactions.

3.3.

Issuance of ECB debt certificates

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.

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 restric-
tions on the transferability of the certificates. Further provisions related to ECB debt certificates will be contained
in the terms and conditions for such certificates.

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.

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;

— 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.

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BOX 1

Issuance of ECB debt certificates

The issue amount is:

PT = N×

1

1+

rI×D
36 000

where:

N = nominal amount of the debt certificate

rI = interest rate (in %)
D = maturity of the debt certificate (in days)

PT = issue amount of the debt certificate

3.4.

Foreign exchange swaps

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 transac-
tions 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.

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 on
a specified repurchase date. Further provisions for foreign exchange swaps are specified in the contractual arrange-
ment applied by the respective national central bank (or the ECB).

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 prac-
tice. 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 accord-
ing to general market conventions. The exchange rate terms of foreign exchange swaps are specified in Box 2.

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.

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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

ΔM =

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

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

ΔM=FM – S

N(ABC) = N(EUR)×S or N(EUR) =

N(ABC)

S

N(ABC)M = N(EUR)M×FM or N(EUR)M =

N(ABC)M
FM

3.5.

Collection of fixed-term deposits

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.

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.

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.

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 bilat-

eral 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 (3) may be executed by the ECB);

and

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

ties for the collection of fixed-term deposits.

(3) 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

STANDING FACILITIES

4.1.

The marginal lending facility

T y p e o f

i n s t r u m e n t

Counterparties may use the marginal lending facility to obtain overnight liquidity from national central banks at a
pre-specified interest rate against eligible assets (as set out in Chapter 6). The facility is intended to satisfy counter-
parties’ 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.

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 over-
night 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 pro-
viding 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, an
assignment or a charge) which apply in different jurisdictions.

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 securities settlement system(s)
(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 the latest 30 minutes
after the actual closing time of TARGET (1)
(2). As a general rule, the closing time for the TARGET system is 6
p.m. ECB time (CET). The deadline for requesting access to the marginal lending facility is postponed by an addi-
tional 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.

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 TAR-
GET, 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.

(1)

(2)

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.
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 (3) (4). Interest under the facility is payable with the repayment of the
credit.

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

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 pro-
vides a floor for the overnight market interest rate. The terms and conditions of the deposit facility are identical
throughout the euro area (5).

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.

A c c e s s c o n d i t i o n s (6)

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 (CET) (7)
(8). 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.

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, depos-
its 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.

(3)

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.

(4) Decisions on interest rate changes are taken by the Governing Council. These decisions are normally made when it assesses the mon-
etary policy stance (at its first meeting of the month) and become effective only from the beginning of the new reserve maintenance
period.

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

area countries.

(6) 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.
See footnote 1 in this chapter.
See footnote 2 in this chapter.

(7)
(8)

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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 (9). Interest on the deposits is payable on maturity of the deposit.

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.

(9)

See footnote 4 in this chapter.

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CHAPTER 5

PROCEDURES

5.1.

Tender procedures

5.1.1. General considerations

Eurosystem open market operations are normally executed in the form of tenders. The Eurosystem’s tender proce-
dures 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 ten-
ders. The procedures for standard and quick tenders are identical, except for the time frame and the range of
counterparties.

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.

The main refinancing operations, the longer-term refinancing operations and structural operations (with the excep-
tion 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.

Q u i c k t e n d e r s

Quick tenders are normally executed within 90 minutes of the announcement of the tender, with certification tak-
ing 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 opera-
tions, if deemed appropriate. Quick tenders are only used for the execution of fine-tuning operations. The Euro-
system may select, according to the criteria and procedures specified in Section 2.2, a limited number of
counterparties to participate in quick tenders.

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 (1). 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 (2).

(1)

(2)

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.

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BOX 3

Operational steps for tender procedures

Step 1 Tender announcement

Announcement by the ECB through public wire services

a.
b. Announcement by the national central banks through national wire services and directly to indi-

vidual 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

ECB allotment decision

a.
b. Announcement of the allotment result

Step 5 Certification of individual allotment results

Step 6 Settlement of the transactions (see Section 5.3)

5.1.2. Tender operations calendar

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 (3). 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 refi-
nancing 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.

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 (4) in all Member States.

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.

(3)

(4)

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).
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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Normal time frame for the operational steps in standard tenders (times are stated in ECB time (CET))

CHART 1

CHART 2

Normal time frame for the operational steps in quick tenders

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.

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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);

— 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 stan-
dard tenders. In a quick tender, regardless of whether it is announced publicly or not, the selected counterparties
are contacted directly by the national central banks.

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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 (5).

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 (6)
(7). 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.

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 with a sufficient
amount of eligible underlying assets (8). 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 ten-
der allotment.

(5)

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

(6) 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

(7)

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.

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

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5.1.5. Tender allotment procedures

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, accord-
ing 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.

BOX 4

Allotment of fixed rate tenders

The percentage of allotment is:

all% =

A

n

∑

ai

i=1

The amount allotted to the i th counterparty is:

alli = all%×(ai)

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

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 descending 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 allot-
ted, 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 counter-
party is rounded to the nearest euro.

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 ascending order of offered interest rates (or descending
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 aggre-
gate 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 opera-
tions, 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.

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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:

m–1

A–∑

a(rs)

s=1
a(rm)

all%(rm) =

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

all(rm)i = all%(rm) × a(rm)i

The total amount allotted to the ith counterparty is:

m–1

alli = ∑

a(rs)i + all(rm)i

s=1

where:

A

rs
n

a(rs)i
a(rs)

= total amount allotted

= sth interest rate bid by the counterparties

= total number of counterparties

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

a(rs) = ∑

a(rs)i

i=1

rm

= marginal interest rate:

r1 ≥ rs ≥ rm for a liquidity-provinding 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 satis-

fied):
rm–1 > rm for a liquidity-providing tender
rm > rm–1
for a liquidity-absorbing tender

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

= total amount allotted to the ith counterparty

= allotment to the ith counterparty at the sth interest rate

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 ascending
order of swap point quotations (9). The bids with the lowest swap point quotations are satisfied first and subse-
quently successively higher swap point quotations areaccepted 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
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 mar-
ginal swap point quotation (see Box 6). The amount allotted to each counterparty is rounded to the nearest euro.

In the allotment of liquidity-absorbing variable rate foreign exchange swap tenders, bids are listed in descending
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 mar-
ginal swap point quotation (see Box 6). The amount allotted to each counterparty is rounded to the nearest euro.

(9)

Swap point quotations are listed in ascending 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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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.

BOX 6

Allotment of variable rate foreign exchange swap tenders

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

m–1

A–∑

a(Δs)

s=1
a(Δm)

all%(Δm) =

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

The total amount allotted to the ith counterparty is:

all(Δm)i = all%(Δm) × a(Δm)i

m–1

alli = ∑

a(Δs)i + all(Δm)i

s=1

where:
A
Δs
n
a(Δs)i
a(Δs)

= total amount allotted
= sth swap point quotation bid by the counterparties
= total number of counterparties
= amount bid at the sth swap point quotation (Δs) by the ith counterparty
= total amount bid at the sth swap point quotation (Δs)

n

a(Δs) = ∑

a(Δs)i

i=1

Δm

= marginal swap point quotation:

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

Δm-1

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

which bids are completely satisfied):
Δm > Δm–1
for a liquidity-providing foreign exchange swap
Δm–1 > Δm for a liquidity-absorbing foreign exchange swap
percentage of allotment at the marginal swap point quotation
= allotment to the ith counterparty at the sth swap point quotation
= total amount allotted to the ith counterparty

all%(Δm) =
all(Δs)i
alli

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;

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— the total amount bid by Eurosystem counterparties;

— the number of bidders;

— 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

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 (10). 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. In this respect, two different types of bilateral procedures can be distinguished: operations where counter-
parties are contacted directly by the Eurosystem, and operations executed through stock exchanges and market
agents.

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 transac-
tions would nevertheless be settled in a decentralised manner through the national central banks.

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.

(10) 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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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.

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.

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 busi-
ness 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 opera-
tions 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 counter-
parties’ securities settlement accounts with SSSs fulfilling the ECB’s minimum standards (11). Counterparties with-
out 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.

Normal settlement dates for Eurosystem open market operations (1)

Table 3

Monetary policy instrument

Settlement date for operations based
on standard tenders

Settlement date for operations based on
quick tenders or bilateral procedures

Reverse transactions

Outright transactions

Issuance of debt certificates

Foreign exchange swaps

Collection of fixed-term deposits

T + 1 (2)

—

T + 1

—

—

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).

(11) 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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5.3.2. Settlement of open market operations

Open market operations based on standard tenders (i.e. main refinancing operations, longer-term refinancing opera-
tions 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 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 fea-
tures 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).

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 (CET). No further payment
orders are accepted for processing in the national RTGS systems after the closing time, although remaining pay-
ment 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 (12).

Any negative balances on the settlement accounts (in the national RTGS systems) of eligible counterparties remain-
ing 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).

(12) The deadline for requesting access to the Eurosystem’s standing facilities is postponed by an additional 30 minutes on the last Euro-

system business day of a minimum reserve maintenance period.

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CHAPTER 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 mar-
kets 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, an assignment or
a charge granted over relevant assets (in the case of collateralised loans) (1).

With the aims of protecting the Eurosystem from incurring losses in its monetary policy operations and of ensur-
ing the equal treatment of counterparties, as well as of enhancing operational efficiency and transparency, under-
lying assets have to fulfil certain criteria in order to be eligible for Eurosystem monetary policy operations. The
Eurosystem has developed a single framework for eligible assets common to all Eurosystem credit operations. This
single framework (also referred to as the ‘Single List’) will come into effect on 1 January 2007 and will replace the
two-tier system which has been in place from the start of Economic and Monetary Union and will be phased out
by 31 May 2007 (2).

The single framework comprises two distinct asset classes – marketable assets and non-marketable assets. No dis-
tinction is made between the two asset classes with regard to the quality of the assets and their eligibility for the
various types of Eurosystem monetary policy operations, except that non-marketable assets are not used by the
Eurosystem for outright transactions. The assets eligible for Eurosystem monetary policy operations can also be
used as underlying assets for intraday credit.

The eligibility criteria for the two asset classes are uniform across the euro area (3) and are set out in Section 6.2.
To ensure that the two asset classes comply with the same credit standards, a Eurosystem credit assessment frame-
work (ECAF) has been set up, which relies on different credit assessment sources. The procedures and rules estab-
lishing and controlling the Eurosystem’s requirement of ‘high credit standards’ for all eligible collateral are outlined
in Section 6.3. The risk control measures and valuation principles for underlying assets are set out in Sections 6.4
and 6.5. Eurosystem counterparties may use eligible assets on a cross-border basis (see Section 6.6).

6.2.

Eligibility specifications for underlying assets

The ECB establishes, maintains and publishes a list of eligible marketable assets (4). For non-marketable assets, the
ECB will neither publish a list of eligible assets nor a list of eligible debtors/guarantors.

6.2.1. Eligibility criteria for marketable assets

Debt certificates issued by the ECB and all debt certificates issued by the national central banks of the Eurosystem
prior to the date of adoption of the euro in their respective Member State are eligible.

To determine the eligibility of other marketable assets, the following eligibility criteria are applied (see also Table 4):

(1)

(2)

(3)

(4)

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.
Tier two assets that do not qualify under the eligibility criteria for the single framework for eligible collateral will remain eligible until
31 May 2007, and the associated haircuts for marketable tier two assets (as set out in the General Documentation published in Febru-
ary 2005) continue to apply until that date. The Governing Council has also decided that units of French fonds communs de créances
(FCCs) incorporated in the tier one list will remain eligible for a transitional period until 31 December 2008.
For a specific asset class of the non-marketable assets – credit claims – an interim period until 31 December 2011 is applicable, in
which a limited number of eligibility and operational criteria may diverge across the euro area (see Section 6.2.2).
This list is published and updated daily on the ECB’s website (www.ecb.int). Marketable assets issued by non-financial corporations
without a rating from an external credit assessment institution (ECAI) for the issue, issuer or guarantor are not included in the public
list of eligible marketable assets. For these debt instruments, the eligibility status is dependent on the credit assessment of the credit
assessment source chosen by the respective counterparty in accordance with the ECAF rules applicable to credit claims as set out in
Section 6.3.3.

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T y p e o f a s s e t

It must be a debt instrument 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. Debt instruments may not afford rights
to the principal and/or the interest that are subordinated to the rights of holders of other debt instruments of the
same issuer.

Requirement (a) does not apply to asset-backed securities, with the exception of bonds issued by credit institutions in
accordance with the criteria set out in Article 22 of the UCITS Directive (5) (referred to as ‘covered bank bonds’).
The Eurosystem assesses the eligibility of asset-backed securities other than covered bank bonds against the follow-
ing criteria.

The cash flow-generating assets backing the asset-backed securities must:

(a)

be legally acquired in accordance with the laws of a Member State from the originator or an intermediary by
the securitisation special-purpose vehicle in a manner which the Eurosystem considers to be a ‘true sale’ that
is enforceable against any third party, and be beyond the reach of the originator and its creditors, including in
the event of the originator’s insolvency;

and

(b) not consist, in whole or in part, actually or potentially, of credit-linked notes or similar claims resulting from

the transfer of credit risk by means of credit derivatives.

Within a structured issue, in order to be eligible, a tranche (or sub-tranche) may not be subordinated to other
tranches of the same issue. A tranche (or sub-tranche) is considered to be non-subordinated vis-à-vis other tranches
(or sub-tranches) of the same issue, and is ‘senior’ if, in accordance with the priority of payment applicable after
the delivery of an enforcement notice, as set out in the offering circular, that tranche (or sub-tranche) is given
priority over other tranches or sub-tranches in respect of receiving payment (principal and interest), or is last in
incurring losses in relation to underlying assets.

The Eurosystem reserves the right to request from any relevant third party (such as the issuer, the originator or the
arranger) any clarification and/or legal confirmation that it considers necessary to assess the eligibility of asset-
backed securities.

C r e d i t s t a n d a r d s

The debt instrument must meet the high credit standards specified in the ECAF rules for marketable assets, as set
out in Section 6.3.2.

P l a c e o f

i s s u e

The debt instrument must be deposited/registered (issued) in the EEA with a central bank or with a central securi-
ties depository (CSD) which fulfils the minimum standards established by the ECB (6). In case a marketable debt
instrument is issued by a non-financial corporation (7) that is not rated by an accepted external credit assessment
institution (ECAI), the place of issue must be the euro area.

(6)

(5) 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 of 31 December 1985, page 3), as last amended
by Directive 2005/1/EC (OJ L 79 of 24 March 2005, page 9).
From 1 January 2007, international debt securities in global bearer form must, in order to be eligible, be issued in the form of New
Global Notes (NGNs) and must be deposited with a Common Safekeeper (CSK) which is an ICSD or, if applicable, a CSD that fulfils the
minimum standards established by the ECB. International debt securities in global bearer form that were issued in the form of Classical
Global Notes (CGNs) prior to 1 January 2007 and fungible securities issued under the same ISIN code on or after that date will remain
eligible until maturity.

(7) Non-financial corporations are defined as in the European System of Accounts 1995 (ESA 95).

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S e t t l e m e n t p r o c e d u r e s

The debt instrument must be transferable in book-entry form. It must be held and settled in the euro area through
an account with the Eurosystem or with an SSS that 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 (8).

A c c e p t a b l e m a r k e t s

The debt instrument must be admitted to trading on a regulated market as defined in the Directive 2004/39/EC of
the European Parliament and of the Council of 21 April 2004 on markets in financial instruments (9), or traded on
certain non-regulated markets as specified by the ECB (10). The assessment of non-regulated markets by the Euro-
system is based on three principles – safety, transparency and accessibility (11).

T y p e o f

i s s u e r / g u a r a n t o r

The debt instrument may be issued or guaranteed by central banks, public sector entities, private sector entities, or
international or supranational institutions. Debt instruments other than covered bank bonds that are issued by
credit institutions are only eligible if they are admitted to trading on a regulated market as defined above.

P l a c e o f e s t a b l i s h m e n t o f

t h e i s s u e r / g u a r a n t o r

The issuer must be established in the EEA or in one of the non-EEA G10 countries (12). 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 G10 country. For
this purpose, a legal assessment in a form and with substance acceptable to the Eurosystem will have to be sub-
mitted before the assets can be considered eligible. In the case of an asset-backed security, the issuer must be estab-
lished in the EEA.

The guarantor must be established in the EEA.

International or supranational institutions are eligible issuers/guarantors irrespective of their place of establish-
ment. In case a marketable debt instrument is issued by a non-financial corporation that is not rated by an ECAI,
the issuer/guarantor must be established in the euro area.

C u r r e n c y o f d e n o m i n a t i o n

The debt instrument must be denominated in euro (13).

(8)

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).

(9) OJ L 145 of 30 April 2004, page 1.
(10) A list of acceptable non-regulated markets is published on the ECB’s website (www.ecb.int) and updated at least once a year.
(11)

‘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 prin-
ciples 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
procedure 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 procedure and operation allow the
Eurosystem to obtain information and conduct transactions when needed for these purposes.
(12) Non-EEA G10 countries currently include the United States, Canada, Japan and Switzerland.
(13) Expressed as such or in the national denominations of the euro.

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6.2.2. Eligibility criteria for non-marketable assets

Two types of non-marketable assets are eligible as collateral in the single framework for eligible assets: credit claims
and non-marketable retail mortgage-backed debt instruments (RMBDs) (14).

C r e d i t c l a i m s

To be eligible, a credit claim (15) has to fulfil the following eligibility criteria (see also Table 4):

— Type of asset: It must be a credit claim which is a debt obligation of a debtor vis-à-vis a Eurosystem counter-
party. Credit claims that have a ‘reducing balance’ (i.e. where the principal and interest are paid off according
to a pre-agreed schedule) are also eligible. Undrawn credit lines (e.g. undrawn facilities of revolving credit
claims), current account overdrafts and letters of credit (which authorise the use of credit but are not credit
claims per se) are not eligible. The share of a syndicate member institution in a syndicated loan is consid-
ered an eligible type of credit claim. Credit claims may not afford rights to the principal and/or the interest
that are subordinated to the rights of holders of other credit claims or debt instruments of the same issuer.

The credit claim must have (a) a fixed, unconditional principal amount and (b) an interest rate that cannot
result in a negative cash flow. In addition, the interest rate should be one of the following: (i) zero coupon-
style; (ii) fixed; or (iii) floating linked to another interest rate reference. These features must be maintained
until the redemption of the obligation.

— Type of debtor/guarantor: Eligible debtors or guarantors are non-financial corporations (16), public sector enti-
ties and international or supranational institutions. Each debtor is individually and severally liable for the full
repayment of the credit claim in question (co-debtors jointly liable for individual credit claims are excluded).

— Place of establishment of the debtor/guarantor: The debtor/guarantor must be established in the euro area. This

requirement does not apply to international or supranational institutions.

— Credit standards: The quality of credit claims is assessed through the underlying creditworthiness of the
debtor/guarantor. Credit claims must meet the high credit standards specified in the ECAF rules for non-
marketable assets, as set out in Section 6.3.3.

— Minimum size: At the time of submission for use as collateral (mobilisation) by the counterparty, the credit
claim must meet a minimum size threshold. In an interim period (1 January 2007 to 31 December 2011),
each national central bank may apply a minimum size of its choice for domestic credit claims. For cross-
border use, a common minimum threshold of EUR 500 000 is applicable in the interim period (17). As from
1 January 2012 a common minimum threshold of EUR 500 000 will be applicable to all credit claims through-
out the euro area.

— Handling procedures: The credit claim must be handled according to the Eurosystem procedures as defined in

the respective national documentation.

— Governing laws: The credit claim agreement and the agreement between the counterparty and the national
central bank mobilising the credit claim as collateral (‘mobilisation agreement’) must both be governed by the
law of a Member State belonging to the euro area. Furthermore, the total number of different governing laws
that are applicable to (i) the counterparty, (ii) the creditor, (iii) the debtor, (iv) the guarantor (if relevant), (v)
the credit claim agreement and (vi) the mobilisation agreement may not exceed two.

— Currency of denomination: The credit claim must be denominated in euro (18).

(14) Between 1 January 2007 and 31 December 2011, an intermediate regime will be in place for credit claims, allowing each national
central bank to choose the minimum threshold for the size of credit claims eligible for collateral purposes (apart from cross-border
use) and whether a handling fee should be applied. As from 1 January 2012, a unified regime will be in place.

(15) Credit claims are also referred to as bank loans. Schuldscheindarlehen and Dutch registered private claims on the government or other

eligible debtors that are covered by a government guarantee (e.g. housing associations) are deemed to be equivalent to credit claims.

(16) As defined in the ESA 95.
(17) The Banque centrale du Luxembourg (BcL) will apply the common minimum threshold for cross-border use as from 1 January 2008

at the latest. Until then, BcL will apply a minimum threshold of EUR 1 000 000.

(18) See footnote 13 in this chapter.

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N o n - m a r k e t a b l e r e t a i l m o r t g a g e - b a c k e d d e b t

i n s t r u m e n t s

The following eligibility criteria are applied to RMBDs (see also Table 4):

— Type of asset: It must be a debt instrument (a promissory note or a bill of exchange) that is secured by a pool
of residential mortgages and that falls short of full securitisation. Substitution of assets in the underlying pool
must be possible and a mechanism needs to be in place to ensure that the Eurosystem enjoys priority over
creditors other than those exempted for public policy reasons (19).

The RMBD must have (a) a fixed, unconditional principal amount and (b) an interest rate that cannot result in
a negative cash flow.

— Credit standards: The RMBD must meet high credit standards, which are assessed through the part of the ECAF

that addresses RMBDs, as set out in Section 6.3.3.

— Type of issuer: Eligible issuers are credit institutions that are eligible counterparties.

— Place of establishment of the issuer: The issuer must be located in the euro area.

— Handling procedures: The RMBD must be handled according to the Eurosystem procedures as defined in the

respective national documentation.

— Currency of denomination: The RMBD must be denominated in euro (20).

6.2.3. Additional requirements for the use of eligible assets

A d d i t i o n a l

l e g a l r e q u i r e m e n t s f o r c r e d i t c l a i m s

In order to ensure that a valid security is created over credit claims and that the credit claim can be swiftly realised
in the event of a counterparty default, additional legal requirements have to be met. These legal requirements
relate to:

— the verification of the existence of credit claims;

— the notification of the debtor about the mobilisation of the credit claim or the registration of such mobilisation;

— the absence of restrictions related to banking secrecy and confidentiality;

— the absence of restrictions on the mobilisation of the credit claim;

— the absence of restrictions on the realisation of the credit claim.

The content of these legal requirements is set out in Annex 7. Further details of the specific features of the national
jurisdictions are provided in the respective national documentation.

R u l e s f o r t h e u s e o f e l i g i b l e a s s e t s

Marketable assets can be used for all monetary policy operations which are based on underlying assets, i.e. reverse
and outright open market transactions and the marginal lending facility. Non-marketable assets can be used as
underlying assets for reverse open market transactions and the marginal lending facility. They are not used in Euro-
system outright transactions. All marketable and non-marketable assets can also be used as underlying assets for
intraday credit.

Irrespective of the fact that a marketable or non-marketable asset fulfils all eligibility criteria, a counterparty may
not submit as collateral any asset issued or guaranteed by itself or by any other entity with which it has close
links (21).

Irish mortgage-backed promissory notes are currently the only instruments in this asset class.

(19)
(20) See footnote 13 in this chapter.
(21)

In the event of a counterparty using assets that, owing to an identity with the issuer/debtor/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 coun-
terparty has to remove the asset on the earliest possible date.

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‘Close links’ means a situation in which the counterparty is linked to an issuer/debtor/guarantor of eligible assets
by reason of the fact that:

(i)

(ii

the counterparty owns 20 % or more of the capital of the issuer/debtor/guarantor, or one or more undertak-
ings in which the counterparty owns the majority of the capital own 20 % or more of the capital of the
issuer/debtor/guarantor, 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/debtor/guarantor;

or

the issuer/debtor/guarantor owns 20 % or more of the capital of the counterparty, or one or more undertak-
ings in which the issuer/debtor/guarantor owns the majority of the capital own 20 % or more of the capital
the counterparty, or the issuer/debtor/guarantor and one or more undertakings in which the
of
issuer/debtor/guarantor 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/debtor/guarantor, either directly or indirectly, through one or more undertakings in which that third
party owns the majority of the capital.

The above provision on close links does not apply to: (a) close links between the counterparty and the public
authorities of EEA countries
the
issuer/debtor/guarantor); (b) covered bank bonds issued in accordance with the criteria set out in Article 22(4) of
the UCITS Directive; or (c) cases in which debt instruments are protected by specific legal safeguards comparable
to those for the instruments given under (b).

(including the case where the public authority is a guarantor of

Furthermore, in spite of their eligibility, national central banks may decide not to accept the following marketable
or non-marketable assets as collateral:

— debt instruments falling due before the maturity date of the monetary policy operation for which they are

being used as underlying assets (22);

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 eligible marketable and non-marketable assets must be usable in a cross-border context throughout the euro
area. This implies that all Eurosystem counterparties must be able to use eligible assets either through links with
their domestic SSSs in the case of marketable assets 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).

Table 4

Eligible assets for Eurosystem monetary policy operations

Eligibility criteria

Marketable assets (1)

Non-marketable assets (2)

Type of asset

ECB debt certificates

Credit claims

RMBDs

Other marketable debt instru-
ments (3)

(22)

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.

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Eligibility criteria

Marketable assets (1)

Non-marketable assets (2)

Credit standards

The asset must meet high
credit standards. The high
credit standards are assessed
for
using
marketable assets (3).

ECAF

rules

The
debtor/guarantor must
meet high credit standards. The
assessed
creditworthiness
for credit
using ECAF rules
claims.

is

The asset must meet high
credit standards. The high
credit
are
assessed using ECAF rules
for RMBDs.

standards

Place of issue

EEA (3)

Not applicable

Not applicable

Settlement/handling
procedures

Place of settlement: euro area
Instruments must be centrally
deposited in book-entry form
with central banks or an SSS
fulfilling the ECB’s minimum
standards.

Eurosystem procedures

Eurosystem procedures

Type of
issuer/debtor/
guarantors

Central banks
Public sector
Private sector
International and suprana-
tional institutions

Public sector
Non-financial corporations
International and supranational
institutions

Credit institutions

Place of establish-
ment of the
issuer/debtor or
guarantor

Issuer (3): EEA or non-EEA
G10 countries
Guarantor (3): EEA

Euro area

Euro area

Acceptable mar-
kets

Regulated markets
Non-regulated
accepted by the ECB

markets

Not applicable

Not applicable

Currency

Euro

Euro

Euro

Minimum size

Not applicable

Not applicable

Minimum size threshold at the
time of submission of the credit
claim.
Between 1 January 2007 and
31 December 2011:
— for domestic use: choice of

the NCB;

— for cross-border use: com-
of

threshold

mon
EUR 500 000 (4).

As from 1 January 2012: com-
mon minimum threshold of
EUR 500 000 throughout the
euro area.

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Eligibility criteria

Marketable assets (1)

Non-marketable assets (2)

Governing laws
related to credit
claims

Not applicable

Governing law for credit claim
agreement
and mobilisation:
law of a Member State of the
euro area.
The total number of different
laws applicable to
(i)
(ii)
(iii)
(iv)
(v)

the counterparty,
the creditor,
the debtor,
the guarantor (if relevant),
the credit claim agreement,
and
the mobilisation agree-
ment shall not exceed two.

Not applicable

Yes

Cross-border use

Yes

(vi)

Yes

(1) Further details are set out in Section 6.2.1.
(2) Further details are set out in Section 6.2.2.
(3) The credit standard of non-rated marketable debt instruments issued or guaranteed by non-financial corporations is determined
on the basis of the credit assessment source chosen by the respective counterparty in accordance with the ECAF rules appli-
cable to credit claims, as set out in Section 6.3.3. In the case of these marketable debt instruments, the following eligibility
criteria for marketable assets have been amended: place of establishment of the issuer/guarantor: euro area; place of issue:
euro area.

(4) The Banque centrale du Luxembourg (BcL) will apply the common minimum threshold for cross-border use as from 1 January

2008 at the latest. Until then, BcL will apply a minimum threshold of EUR 1 000 000.

6.3.

Eurosystem credit assessment framework

6.3.1. Scope and elements

The Eurosystem credit assessment framework (ECAF) defines the procedures, rules and techniques which ensure
that the Eurosystem requirement of high credit standards for all eligible assets is met.

Within the general framework, in the establishment of high credit standards, the Eurosystem differentiates between
marketable and non-marketable assets (see Sections 6.3.2 and 6.3.3) in order to take account of the different legal
nature of these assets and for operational efficiency reasons.

In the assessment of the credit standard of eligible assets, the Eurosystem takes into account credit assessment
information from credit assessment systems belonging to one of four sources, namely external credit assessment
institutions (ECAIs), NCBs’ in-house credit assessment systems (ICASs), counterparties’ internal ratings-based (IRB)
systems or third-party providers’ rating tools (RTs). Additionally, in the assessment of the credit standard, the Euro-
system takes into account institutional criteria and features guaranteeing similar protection for the instrument
holder such as guarantees.

The Eurosystem’s benchmark for establishing its minimum requirement for high credit standards (its ‘credit quality
threshold’) is defined in terms of a ‘single A’ credit assessment (23). The Eurosystem considers a probability of default
(PD) over a one-year horizon of 0.10 % as equivalent to a ‘single A’ credit assessment, subject to a regular review.
The ECAF follows the definition of a default event given in the EU Capital Requirements Directive (CRD) (24). The
Eurosystem publishes the lowest rating grade meeting the required credit quality threshold for each accepted ECAI,
without assuming any responsibility of its assessment of the ECAI, again subject to regular review.

‘Single A’ means a minimum long-term rating of ‘A-’ by Fitch or Standard & Poor’s, or ‘A3’ by Moody’s.

(23)
(24) The CRD comprises Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up
and pursuit of the business of credit institutions (recast) (OJ L177 of 30 June 2006, page 1) and Directive 2006/49/EC of the European
Parliament and of the Council of 14 June 2006 on the capital adequacy of investment firms and credit institutions (recast) (OJ L177 of
30 June 2006, page 201).

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The Eurosystem reserves the right to determine whether an issue, issuer, debtor or guarantor fulfils its require-
ments for high credit standards on the basis of any information it may consider relevant and may reject assets on
such grounds. In case such a rejection is based on prudential information, the use of any such information trans-
mitted either by counterparties or by supervisors shall be strictly commensurate with, and necessary for, the per-
formance of the Eurosystem’s tasks of conducting monetary policy.

In order to ensure the consistency, accuracy and comparability of the four credit assessment sources used in the
ECAF, the Eurosystem has devised acceptance criteria for each of these sources (see Section 6.3.4) and regularly
monitors their credit assessment performance against the credit quality threshold (see Section 6.3.5).

6.3.2. Establishment of high credit standards for marketable assets

The high credit standards for marketable assets are established on the basis of the following set of criteria:

— ECAI credit assessment: At least one credit assessment from an accepted ECAI (as set out in Section 6.3.4) for
the issue (or, in its absence, for the issuer) must comply with the Eurosystem’s credit quality threshold (25)
(26). The ECB publishes the credit quality threshold for any accepted ECAI, as established under
Section 6.3.1 (27).

— Guarantees: In the absence of an (acceptable) ECAI credit assessment of the issuer, high credit standards can be
established on the basis of guarantees provided by financially sound guarantors. The financial soundness of
the guarantor is assessed on the basis of ECAI credit assessments meeting the Eurosystem’s credit quality
threshold. The guarantee must meet the following requirements:

— 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 obli-
gations 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 sup-
ported 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 must also confirm that the guar-
antee 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 (28). 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.

(25)

If multiple and possibly conflicting ECAI assessments are available for the same issuer/debtor or guarantor, the first-best rule (i.e. the
best available ECAI credit assessment) is applied.

(26) Covered bank bonds are deemed to fulfil high credit standards irrespective of the rules set out in the criteria on ECAI credit assessment

if they comply strictly with the criteria set out in Article 22 (4) of the UCITS Directive.

(27) This information is published on the ECB’s website (www.ecb.int).
(28) The national central bank reporting a certain asset is normally the national central bank of the country in which the asset will be
admitted to trading/traded on an acceptable market. In the event that an asset is admitted to trading/traded on multiple markets, any
queries should be addressed to the ECB’s Eligible Assets Hotline (Eligible-Assets.hotline@ecb.int).

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In the absence of an ECAI credit assessment for the issue, issuer or guarantor, the high credit standards are estab-
lished as follows:

— Euro area public sector issuers or guarantors: If a marketable asset is issued or guaranteed by a regional govern-
ment, local authority or public sector entity (PSE) located in the euro area as defined in the CRD, the follow-
ing procedure applies:

— The issuer or guarantor is allocated to one of three classes in accordance with the CRD (29) as explained

in Table 5.

— An implicit credit assessment for issuers or guarantors belonging to classes 1 and 2 is derived from the
ECAI credit assessment of the central government of the country where the issuer or guarantor is estab-
lished. This implicit credit assessment has to meet the Eurosystem credit quality threshold. No implicit
credit assessment is derived for issuers/guarantors belonging to class 3.

— Euro area non-financial corporate issuers or guarantors: If the high credit standards for marketable assets which
are issued/guaranteed by non-financial corporations (30) located in the euro area cannot be established on the
basis of an ECAI credit assessment for the issue, issuer or guarantor, the ECAF rules for credit claims will be
applicable and counterparties are allowed to make use of their own IRB system, NCBs’ in-house credit assess-
ment systems or third-party rating tools. The non-rated marketable debt instruments issued by non-financial
corporations are not included in the public list of eligible marketable assets.

Table 5

Implicit credit assessments for euro area regional government, local authority and public sector
entity issuers, debtors or guarantors without an ECAI credit assessment

Class 1

Class 2

Allocation of issuers, debtors or guarantors
following the CRD

that,

according

Regional governments, local authorities and
competent
PSEs
supervisory authorities, can be treated equally
to the
capital
requirements purposes

central government

for

to

that,

according

Regional governments, local authorities and
competent
PSEs
supervisory authorities, can be treated equally
to
capital
institutions
requirements purposes

[credit]

for

to

ECAF derivation of the implicit credit assessment of
the issuer, debtor or guarantor belonging to the
corresponding class

Allocated the ECAI credit assessment of the
central government of the country in which it
is established

Allocated a credit assessment one credit quality
step (1) below the ECAI credit assessment of the
central government ofthe country in which it is
established

Class 3

Other PSEs

Treated like private sector issuers or debtors

(1)

Information on the credit quality steps is published on the ECB’s website (www.ecb.int).

6.3.3. Establishment of high credit standards for non-marketable assets

C r e d i t c l a i m s

In order to establish the requirement for high credit standards for the debtors or guarantors of credit claims, coun-
terparties have to select one main credit assessment source from among those that are available and accepted by
the Eurosystem. A counterparty will select one system from an available credit assessment source, except in the
case of ECAIs, where all accepted ECAI systems may be used.

(29) Lists of entities belonging to the three classes, as well as the criteria for classifying issuers, debtors or guarantors into the three classes,
are expected to be made available, together with links to the relevant websites of the national supervisory authorities, on the website
of the Committee of European Banking Supervisors (CEBS): http://www.c-ebs.org/SD/Rules_AdditionalInformation.htm

(30) See footnote 7 in this chapter.

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Counterparties have to stick to the selected source for a minimum period of one year so as to preclude ‘hopping’
between credit assessments (i.e. looking for the best credit assessment that guarantees eligibility among all avail-
able sources or systems on a debtor-by-debtor basis). Counterparties wishing to change credit assessment sources
after the minimum period of one year have to submit a reasoned request to the relevant NCB.

Counterparties may be allowed to use more than one system or source upon submission of a reasoned request.
The main credit assessment source chosen is expected to cover the largest number of submitted debtors by the
counterparty. The use of more than one credit assessment source or system should be supported by the existence
of an adequate business case. In principle, such a case could stem from a lack of sufficient coverage of the primary
credit assessment source or system.

Counterparties must inform the national central bank promptly of any credit event, including a delay of payments
by the submitted debtors, that is known to the counterparty and, if necessary, withdraw or replace the assets.
Furthermore, counterparties are responsible for ensuring that they use the most recent credit assessment updates
available from their selected credit assessment system or source for the debtors (31) or guarantors of submitted
assets.

Credit assessments of debtors/guarantors: The high credit standards of the debtors or guarantors of credit claims are
established according to rules differentiating between public sector and non-financial corporate debtors/guarantors:

— Public sector debtors or guarantors: The following rules are applied in a sequential order:

(i) A credit assessment from the system or source selected by the counterparty exists and is used to estab-

lish whether the public sector debtor or guarantor meets the credit quality threshold.

(ii)

In the absence of a credit assessment under (i), an ECAI credit assessment of the debtor or guarantor is
used (32).

(iii)

If no credit assessment is available under either (i) or (ii), the same procedure as for marketable assets
applies:

— The debtor or guarantor is allocated to one of three classes in accordance with the CRD (33) as

explained in Table 5.

— An implicit credit assessment for debtors or guarantors belonging to classes 1 and 2 is derived
from the ECAI credit assessment of the central government of the country where the debtor or
guarantor is established. This implicit assessment has to meet the Eurosystem credit quality threshold.

If a credit assessment from the system or source selected by the counterparty (or from an ECAI in case (ii) for
public sector debtors or guarantors) exists but is below the credit quality threshold, the debtor or guarantor is
ineligible.

— Non-financial corporate debtors or guarantors: If the source selected by the counterparty provides a credit assess-

ment equal to or exceeding the credit quality threshold, the debtor or guarantor is eligible (34)

(35).

If a credit assessment from the system or source selected by the counterparty exists but is below the credit
quality threshold, the debtor or guarantor is ineligible. If no credit assessment is available to establish the
credit standards, the debtor or guarantor is considered ineligible.

(31)

In the case of marketable assets issued by non-financial corporations but not rated by an accepted ECAI, this requirement applies to
the credit assessment of issuers.
(32) See footnote 25 in this chapter.
(33) See footnote 29 in this chapter.
(34)
(35) For specific credit assessment systems, the credit quality threshold can be adjusted following the performance monitoring process (see

If the counterparty has chosen an ECAI as a credit assessment source, it may use the first-best rule (see footnote 25 in this chapter).

Section 6.3.5).

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Guarantees: A guarantee must meet the following requirements:

— A guarantee is deemed acceptable if the guarantor has unconditionally and irrevocably guaranteed the obliga-
tions of the debtor in relation to the payment of principal, interest and any other amounts due under the
credit claim to the holder thereof until they are discharged in full. In this regard, a guarantee deemed accept-
able does not need to be specific to the credit claim but might apply to the debtor only, provided that it also
covers the credit claim in question.

— The guarantee has to be payable on first demand (independently from the underlying credit claim). Guaran-
tees given by public entities entitled to levy taxes should either be payable on first demand or otherwise pro-
vide 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 enforce-

able 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. The legal confirmation should also state that the guarantee is not a per-
sonal one, only enforceable by the creditor of the credit claim. If the guarantor is established in a jurisdiction
other than the one of the law governing the guarantee, the legal confirmation must also confirm that the
guarantee is valid and enforceable under the law governing the establishment of the guarantor. The legal con-
firmation should be submitted for review to the national central bank in the jurisdiction of the law governing
the credit claim. The need for a legal confirmation does not apply to guarantees given by public entities
entitled to levy taxes. The requirement of enforceability is subject to any insolvency or bankruptcy laws, gen-
eral principles of equity and other similar laws and principles applicable to the guarantor and generally affect-
ing creditors’ rights against the guarantor.

N o n - m a r k e t a b l e r e t a i l m o r t g a g e - b a c k e d d e b t

i n s t r u m e n t s

The high credit standards for non-marketable RMBDs must meet the Eurosystem’s credit quality threshold. A
jurisdiction-specific credit assessment framework for these debt instruments will be specified in the applicable
national documentation by the national central banks.

6.3.4. Acceptance criteria for credit assessment systems

The ECAF builds on credit assessment information from four sources. Under each source, there might be a set of
credit assessment systems.

The accepted ECAIs, ICASs and third-party RTs and their providers are listed on the ECB’s website (www.ecb.int) (36).

E x t e r n a l c r e d i t a s s e s s m e n t

i n s t i t u t i o n s o u r c e

The ECAI source encompasses those institutions whose credit assessments may be used by credit institutions for
determining the risk weight of exposures according to the CRD (37). For the purposes of the ECAF, the general
acceptance criteria for ECAIs are the following:

— ECAIs must be formally recognised by the relevant EU supervisory authority for the euro area countries in

which they will be used, in line with the CRD.

— ECAIs must fulfil operational criteria so as to ensure the efficient implementation of the ECAF. In particular,
the use of their credit assessments is subject to the availability to the Eurosystem of information on these
assessments, as well as information for the comparison and the assignment (mapping) of the assessments
with the ECAF credit quality steps and the credit quality threshold and for the implementation of perfor-
mance monitoring (see Section 6.3.5).

(36) The Eurosystem only publishes the information in conjunction with its Eurosystem credit operations and does not assume any respon-

sibility for its evaluation of the accepted credit assessment systems.
(37) ECAIs are commonly referred to as rating agencies in financial markets.

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The Eurosystem reserves the right to decide whether it accepts an ECAI for its lending operations, making use,
among other factors, of its performance monitoring process.

N C B i n - h o u s e c r e d i t a s s e s s m e n t s y s t e m s o u r c e

The ICAS source currently consists of the four credit assessment systems operated by the Deutsche Bundesbank,
the Banco de España, the Banque de France and the Oesterreichische Nationalbank. National central banks decid-
ing to develop their own ICAS would be subject to a validation procedure by the Eurosystem. ICASs are subject to
the Eurosystem performance monitoring process (see Section 6.3.5).

Furthermore, the counterparty must inform the ICAS NCB promptly about any credit event that is known only to
the counterparty, including a delay of payments by the submitted debtors.

Moreover, in countries in which RMBDs are mobilised, the respective national central bank implements a credit
assessment framework for this type of asset in accordance with the ECAF. Such frameworks are subject to a yearly
performance monitoring process.

I n t e r n a l r a t i n g s - b a s e d s y s t e m s o u r c e

A counterparty intending to use an IRB system to assess the credit quality of the debtors, issuers or guarantors of
eligible debt instruments has to obtain the permission of its home national central bank. For that purpose, it must
file a request, together with the following documents (38):

— A copy of the decision of the relevant banking supervisory authority within the EU authorising the counter-
party to use its IRB system for capital requirements purposes on a consolidated or unconsolidated basis,
together with any specific conditions for such use. Such a copy is not requested when such information is
transmitted directly by the relevant supervisory authority to the relevant national central bank.

— Information on its approach to assigning probabilities of default to debtors, as well as data on the rating

grades and associated one-year probabilities of default used to determine eligible rating grades.

— A copy of the Pillar 3 (market discipline) information that the counterparty is required to publish on a regular
basis in accordance with the requirements on market discipline under Pillar 3 of the Basel II framework and
the CRD.

— The name and the address of both the competent banking supervisor and the external auditor.

The request has to be signed by the counterparty’s chief executive officer (CEO), chief financial officer (CFO) or a
manager of similar seniority, or by an authorised signatory on behalf of one of them.

The above provisions apply to all counterparties regardless of their status – parent, subsidiary or branch – and
regardless of whether the endorsement of the IRB system comes from the supervisor in the same country (for a
parent company and possibly for subsidiaries) or from a supervisor in the home country of the parent (for branches
and possibly for subsidiaries).

Any branch or subsidiary of a counterparty may rely on the IRB system of its parent if the Eurosystem has accepted
the use of the IRB system for ECAF purposes.

Counterparties using an IRB system as described above are also subject to the Eurosystem performance monitoring
process (see Section 6.3.5). In addition to the information requirements for this process, the counterparty is under
an obligation to communicate the following information on an annual basis (or as and when required by the rel-
evant national central bank) unless such information is transmitted directly by the relevant supervisory authority
to the relevant national central bank:

— a copy of the most up-to-date assessment of the counterparty’s IRB system by the counterparty’s supervisor

translated in a working language of the home national central bank;

(38)

If necessary, the listed documentation should be translated in a working language of the home national central bank.

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— any changes to the counterparty’s IRB system recommended or required by the supervisor, together with the

deadline by which such changes must be implemented;

— the annual update of the Pillar 3 (market discipline) information that the counterparty is required to publish

on a regular basis in accordance with the requirements of the Basel II framework and the CRD.

— information on the competent banking supervisor and the external auditor.

This yearly communication has to be signed by the counterparty’s CEO, CFO or a manager of similar seniority, or
by an authorised signatory on behalf of one of them. The relevant supervisor and, where applicable, the external
auditor of the counterparty receive a copy of this letter from the Eurosystem.

T h i r d - p a r t y r a t i n g t o o l s o u r c e

The RT source consists of third-party applications that assess the credit quality of debtors using, among other
information, audited accounts. The tools have to be operated by the RT providers. Counterparties wishing to use a
specific RT for ECAF purposes have to submit a request to their respective national central bank, using the appro-
priate template provided by the Eurosystem, complemented by additional documentation of the RT as specified in
the application form. The Eurosystem decides on the acceptance of the proposed RT. The decision is based upon
the evaluation of the compliance with the acceptance criteria set by the Eurosystem (39).

Furthermore, the counterparty must inform the RT provider of any credit event that is known only to the coun-
terparty, including a delay of payments by the submitted debtors.

The RT provider participating in the ECAF needs to subject itself by agreement to the Eurosystem performance
monitoring process (40)
(see Section 6.3.5). The RT provider is obliged to set up and maintain the necessary infra-
structure for monitoring the so-called static pool. Construction and evaluation of the static pool have to be in line
with the general requirements on performance monitoring under the ECAF. The RT provider has to undertake to
inform the Eurosystem of the results of the performance evaluation as soon as it has been carried out by the RT
provider. Therefore, RT providers prepare a report on the RT’s static pool performance. They have to undertake to
keep internal records of static pools and default details for five years.

6.3.5. Performance monitoring of credit assessment systems

The ECAF performance monitoring process consists of an annual ex post comparison of the observed default rate
for the set of all eligible debtors (the static pool) and the credit quality threshold of the Eurosystem given by the
benchmark PD. It aims to ensure that the results from credit assessments are comparable across systems and
sources. The monitoring process takes place one year after the date on which the static pool was defined.

The first element of the process is the annual compilation by the credit assessment system provider of a static pool
of eligible debtors, i.e. a pool consisting of all corporate and public debtors, receiving a credit assessment from the
system satisfying the following condition:

PD(i, t) ≤ 0.10 % (benchmark PD(t))

All debtors fulfilling this condition at the beginning of period t constitute the static pool for t. At the end of the
foreseen 12-month period, the realised default rate for the static pool of debtors at time t is computed. On an
annual basis, the rating system provider has to agree to submit to the Eurosystem the number of eligible debtors
contained in the static pool at time t and the number of those debtors in the static pool (t) that defaulted in the
subsequent 12-month period.

The realised default rate of the static pool of a credit assessment system recorded over a one-year horizon serves as
input to the ECAF performance monitoring process which comprises an annual rule and a multi-period assess-
ment. In case of a significant deviation between the observed default rate of the static pool and the credit quality
threshold over an annual and/or a multi-annual period, the Eurosystem consults the rating system provider to
analyse the reasons for that deviation. This procedure may result in a correction of the credit quality threshold
applicable to the system in question.

(39) The acceptance criteria are listed on the ECB’s website (www.ecb.int).
(40) The counterparty must inform the RT provider promptly about any credit event that may indicate a deterioration of the credit quality.

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The Eurosystem may decide to suspend or exclude the credit assessment system in cases where no improvement in
performance is observed over a number of years. In addition, in the event of an infringement of the rules govern-
ing the ECAF, the credit assessment system will be excluded from the ECAF.

6.4.

Risk control measures

6.4.1. General principles

Risk control measures are applied to the assets underlying Eurosystem credit 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 coun-
terparty. The risk control measures at the disposal of the Eurosystem are described in Box 7.

The Eurosystem applies specific risk control measures according to the types of underlying assets offered by the
counterparty. The ECB determines the appropriate risk control measures for both marketable and non-marketable
eligible assets. The risk control measures are broadly harmonised across the euro area (41) and ought to ensure
non-discriminatory conditions for any type of eligible asset across the euro area.

BOX 7

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 (hair-
cut).

— 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. it will make 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 8.)

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 cer-
tain assets.

— Exclusion

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

(41) Owing to operational differences across Member States, some differences in terms of risk control measures may prevail. For instance,
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.
Furthermore, in the case of non-marketable assets, the precision of valuation techniques may differ, which is reflected in the overall
level of haircuts (see Section 6.4.3).

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6.4.2. Risk control measures for marketable assets

The risk control framework for eligible marketable assets includes the following main elements:

— Eligible marketable assets are allocated to one of four liquidity categories, based on issuer classification and

asset type. The allocation is described in Table 6.

Table 6

Liquidity categories for marketable assets (1)

Category I

Category II

Category III

Category IV

Central government debt
instruments

Local and regional
government debt
instruments

Traditional covered
bank bonds

Asset-backed securities

Debt instruments issued
by central banks (2)

Jumbo covered bank
bonds (3)

Credit institution debt
instruments

Agency debt
instruments (4)

Debt instruments issued
by corporate and other
issuers (4)

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 covered bank bonds are included in category II, in
contrast to other debt instruments issued by credit institutions, which are included in category III.

(2) 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.

(3) Only instruments with an issuing volume of at least EUR 1 billion, for which at least three market-makers provide regular

bid and ask quotes, fall into the asset class of Jumbo covered bank bonds.

(4) Only marketable assets issued by issuers that have been classified as agencies by the ECB are included in liquidity category II.

Marketable assets issued by other agencies are included in liquidity category III.

— 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 Table 7 for eligible marketable fixed
coupon and zero coupon debt instruments (42).

— The valuation haircuts applied to all marketable inverse floating rate debt instruments are the same for all

liquidity classes and are described in Table 8.

— The haircut applied to marketable debt instruments with variable rate coupons (43) 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.

— The risk control measures applied to a marketable debt instrument with more than one type of coupon pay-
ment depend only on the coupon payments during the remaining life of the instrument. The valuation hair-
cut 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.

(42) The valuation haircut levels applied to fixed coupon debt instruments 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.

(43) 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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Table 7

Levels of valuation haircuts applied to eligible marketable assets in relation to fixed coupon and zero

coupon instruments

Liquidity categories

(percentages)

Residual
maturity
(years)

0-1

1-3

3-5

5-7

7-10

>10

Category I

Category II

Category III

Category IV

fixed
coupon

zero
coupon

fixed
coupon

zero
coupon

fixed
coupon

0.5

1.5

2.5

3

4

5.5

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

zero
coupon

1.5

3

5

6

8

15

fixed
coupon

zero
coupon

2

3.5

5.5

6.5

8

12

2

3.5

6

7

10

18

— 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 out-
lined 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 8).

Table 8

Levels of valuation haircuts applied to eligible marketable inverse floating rate debt instruments

Residual maturity (years)

Inverse floater coupon

(percentages)

0-1

1-3

3-5

5-7

7-10

>10

2

7

10

12

17

25

— 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 published list of eligible

marketable assets (44).

(44)

If, at the time of exclusion from the list of eligible marketable assets, 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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BOX 8

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:

I

J

∑

Li,t ≤ ∑

(1–hj)Cj,t

i=1

j=1

(1)

where:

hj is the valuation haircut applied to eligible asset j.

Let τ be the time period between revaluations. The margin call base at time t + τ equals:

I

J

Mt+τ = ∑

Li,t+τ–∑

(1–hj)Cj,t+τ

i=1

j=1

(2)

Depending on the operational features of 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.

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
or

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

Mt+τ < –k∙Li,t+τ
In a pooling system, the counterparty has to bring more assets into the pool if:

(the national central bank pays the margin call to the counterparty).

I

Mt+τ>k∙∑

Li,t+τ

i=1

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

I

IDC = –Mt+τ + k∙∑

Li,t+τ (if positive)

i=1

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

6.4.3. Risk control measures for non-marketable assets

C r e d i t c l a i m s

The risk control framework for eligible credit claims includes the following main elements:

— Individual credit claims are subject to specific valuation haircuts. The haircuts differ according to the residual
maturity, type of interest payment (fixed or variable) and the valuation methodology applied by the national
central bank (see Section 6.5), as described in Table 9.

— The haircut applied to credit claims with variable rate interest payments is 7 %, irrespective of the valuation
methodology applied by the national central bank. An interest payment is considered a variable rate payment
if it is linked to a reference interest rate and if the resetting period corresponding to this payment is no longer
than one year. Interest 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 credit claim.

— The risk control measures applied to a credit claim with more than one type of interest payment depend only
on the interest payments during the remaining life of the credit claim. If there is more than one type of inter-
est payment during the remaining life of the credit claim, the remaining interest payments are treated as fixed
rate payments, with the relevant maturity for the haircut being the residual maturity of the credit claim.

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— The national central banks apply the same trigger point (if applicable) for the execution of margin calls for

marketable and non-marketable assets.

N o n - m a r k e t a b l e r e t a i l m o r t g a g e - b a c k e d d e b t

i n s t r u m e n t s

Non-marketable retail mortgage-backed debt instruments are subject to a valuation haircut of 20 %.

Levels of valuation haircuts applied to credit claims with fixed interest payments

Table 9

Residual maturity (years)

Fixed interest payment and a valuation
based on a theoretical price assigned
by the NCB

Fixed interest payment and a valuation
according to the outstanding amount
assigned by the NCB

(percentages)

0-1

1-3

3-5

5-7

7-10

>10

7

9

11

12

13

17

9

15

20

24

29

41

6.5.

Valuation principles for underlying assets

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

M a r k e t a b l e a s s e t s

— For each eligible marketable asset, the Eurosystem defines the most representative price source to be used for

the calculation of the market value.

— The value of a marketable asset is calculated on the basis of the most representative price on the business day
preceding the valuation date. If more than one price is quoted, the lowest of these prices (normally the bid
price) is used. 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 the reference price obtained is older than five days, or has not
moved for at least five days, the Eurosystem defines a theoretical price.

— The market or theoretical value of a debt instrument is calculated 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 (45).

N o n - m a r k e t a b l e a s s e t s

Non-marketable assets are assigned a value corresponding either to the theoretical price or to the outstanding
amount.

If the national central bank opts for the valuation corresponding to the outstanding amount, the non-marketable
assets may be subject to higher haircuts (see Section 6.4.3).

(45) 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 Section 6.2.3).

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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 throughout the euro area for the handling
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 can be used for
non-marketable assets, i.e. credit claims and RMBDs, which cannot be transferred through an SSS (46). 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 marketable assets (47).

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 (48).

— In an earmarking system, as soon as a counterparty’s 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

(46) Details are provided in the brochure entitled ‘Correspondent central banking model (CCBM) procedure for Eurosystem counterparties’,

which is available on the ECB’s website (www.ecb.int).

(47) 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 1999, De Nederlandsche Bank has been authorised to use
its account with Euroclear Belgium to settle collateral transactions in the Eurobonds issued in that ICSD. Since August 2000, the
Central Bank and Financial Services Authority of Ireland has been authorised to open such an account with Euroclear. This account
can be used for all eligible assets held in Euroclear, i.e. including eligible assets transferred to Euroclear through eligible links.

(48) See footnote 46 in this chapter.

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instructs (via its own custodian, if necessary) the SSS in the country in which its marketable assets 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’ marketable assets 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
marketable assets for the account of the home central bank. Once the home central bank has been informed
by the correspondent central bank that the marketable assets have been received, it will add these marketable
assets to the pool account of the counterparty.

Specific procedures for cross-border use have been developed for non-marketable assets, i.e. credit claims and
RMBDs (49). When credit claims are used as collateral in a cross-border context (50), a CCBM variant is applied to
credit claims, which is based on a transfer of ownership to, an assignment to, a pledge in favour of the home
central bank, or a charge in favour of the correspondent central bank acting as the agent for the home central
bank. A further ad hoc variant based on the charge in favour of the correspondent central bank acting as the agent
for the home central bank has been implemented to allow the cross-border use of RMBDs.

The CCBM is available to counterparties (both for marketable and non-marketable assets) from 9 a.m. to 4 p.m.
ECB time (CET) 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 (CET). 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 (CET) at the latest. Instruc-
tions or deliveries not 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 them). 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.

CHART 4

Links between securities settlement systems

(49) See footnote 46 in this chapter.
(50) CCBM procedures deal only with those cases where the debtor is located in the country of the law governing the credit claim.

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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 marketable
assets.

A direct or relayed 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 (51). Before these links can be used to transfer collateral for Eurosys-
tem credit operations, they have to be assessed and approved against the standards for the use of EU SSSs (52) (53).

From a Eurosystem perspective, the CCBM and the links between EU SSSs fulfil the same role of allowing counter-
parties 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.

(51) A link between two SSSs consists of a set of procedures and arrangements for the cross-border transfer of securities through a book-
entry process. A link takes the form of an omnibus account opened by an SSS (the investor SSS) in another SSS (the issuer SSS). A
direct link implies that no intermediary exists between the two SSSs. Relayed links between SSSs may also be used for the cross-border
transfer of securities to the Eurosystem. A relayed link is a contractual and technical arrangement that allows two SSSs not directly
connected to each other to exchange securities transactions or transfers through a third SSS acting as the intermediary.

(52) The updated list of eligible links can be found on the ECB’s website (www.ecb.int).
(53) 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

MINIMUM RESERVES (1)

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 (2) and Regulation (EC) No 1745/2003 of the
European Central Bank on the application of minimum reserves (ECB/2003/9) (3). The application of Regulation
ECB/2003/9 ensures that the terms and conditions of the Eurosystem’s minimum reserve system are uniform
throughout the euro area.

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 bal-
ances 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 sys-
tem 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 exempt 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 Mem-
ber State. According to Council 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 par-
ticular 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

— the institution has all its deposits earmarked for purposes related to regional and/or international develop-

ment assistance.

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

(1)
(2) OJ L 318 of 27 November 1998, page 1.
(3) OJ L 250 of 2 October 2003, page 10.

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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 (4). 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

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) (5). 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 calen-
dar month two months later. For example, the reserve base calculated from the balance sheet of the end of Febru-
ary 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 of relieving 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 main-
tenance 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 Council 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 institu-
tions. 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 9).

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 (6) to this balance sheet item.

The reserve ratios are determined by the ECB subject to the maximum limit specified in Council 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 Regulation ECB/2003/9. 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 9). The ECB may change the reserve
ratios at any time. Changes in reserve ratios are announced by the ECB in advance of the first maintenance period
for which the change is effective.

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.

(4)
(5)
(6)

The lists are available to the public on the ECB’s website (www.ecb.int).
The reporting framework for the ECB’s money and banking statistics is presented in Annex 4.
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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Each institution deducts an allowance of E100 000 from its reserve requirement in each Member State in which it
has an establishment. The granting of such an allowance is without prejudice to the legal obligations of institu-
tions subject to the Eurosystem’s minimum reserve system (7).

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

BOX 9

Reserve base and reserve ratios

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

Deposits (1)

— Overnight deposits

— Deposits with an agreed maturity of up to two years

— Deposits redeemable at notice up of to two years

Debt securities issued

— Debt securities with an agreed maturity of up to two years

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

Deposits (1)

— Deposits with an agreed maturity of over two years

— Deposits redeemable at notice of over two years

— Repos

Debt securities issued

— Debt securities with an agreed maturity of 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

(1) Regulation (EC) No 2181/2004 of the European Central Bank of 16 December 2004, amending Regulation (EC)
No 2423/2001 (ECB/2001/13) concerning the consolidated balance sheet of the monetary financial institutions sector
and Regulation (EC) No 63/2002 (ECB/2001/18) concerning statistics on interest rates applied by monetary financial insti-
tutions to deposits and loans vis-à-vis households and non financial corporations (ECB/2004/21) (OJ L 371 of 18 Decem-
ber 2004, page 42), explicitly requires the reporting of deposit liabilities at nominal value. Nominal value means the
amount of principal that a debtor is contractually obliged to repay to a creditor. This amendment had become necessary
because Council Directive 86/635/EEC of 8 December 1986 on the annual accounts and the consolidated accounts of
banks and other financial institutions (OJ L 372 of 31 December 1986, page 1) had been amended to the effect that
certain financial instruments could be priced at fair value.

7.4. Maintenance of reserve holdings

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 (8). 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.

(7)

(8)

For institutions allowed to report statistical data as a group on a consolidated basis according to the provisions of the reporting frame-
work 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.
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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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 establish-
ments of the institution (9). 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 rela-
tion 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 mini-
mum 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.

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 10. Reserve holdings exceeding the required reserves are not remunerated. The remunera-
tion is paid on the second NCB business day following the end of the maintenance period over which the remu-
neration was earned.

Calculation of the remuneration of holdings of required reserves

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

BOX 10

Rt =

Ht∙nt∙rt
100∙360

rt=∑

n

t MRi
nt

i=1

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 remuneration on holdings of required reserves for the maintenance period t. Standard round-

ing of the rate of remuneration to two decimals shall be applied.

= ith calendar day of the maintenance period t.

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

day i.

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 mini-
mum 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 notifi-
cation and acknowledgement of the reserve base and the reserve requirement of the institution.

(9)

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 rel-
evant Member State.

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The procedure for the notification and acknowledgement of an institution’s minimum reserves is as follows. Either
the relevant 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 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 mini-
mum 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 Council 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 bal-
ance on its reserve account(s) over the maintenance period is less than its reserve requirement for the correspond-
ing maintenance period.

Where an institution fails to comply with all or part of the reserve requirement, the ECB may, in accordance with
Council 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 institu-
tion 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 Regu-
lation (EC) No 2157/1999 of 23 September 1999 on the powers of the European Central Bank to impose sanc-
tions (ECB/1999/4) (10). 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 Council Regulation (EC) No 2531/98 (11).

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

(10) OJ L 264 of 12 October 1999, page 21.
(11) 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 of 11 February 2000, page 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

62

63

64

65

66

67

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
(30 + 40 + 70)

= 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

5

5

10

5

5

30

Total

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 – 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

Amount (EUR millions)

Bank 1

30,0

14,0

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 352/64

EN

Official Journal of the European Union

13.12.2006

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 – 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

13.12.2006

EN

Official Journal of the European Union

L 352/65

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, implying 6,63 marginal swap points. All bids above 6,63 (for a cumula-
tive amount of EUR 65 million) are fully satisfied. At 6,63 the percentage of allotment is:

158 – 65

100

= 93 %

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

The total allotment to Bank 1 is:

0,93 × 25 = 23,25

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, on the start date of the operation the Eurosystem
buys EUR 158 000 000 and sells USD 178 540 000. On 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).

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
15 000 000
15 000 000
25 000 000
93 000 000

11 300 000
16 950 000
16 950 000
28 250 000
105 090 000

1,130684
1,130680
1,130676
1,130671
1,130667
1,130663
1,130658
1,130654
1,130649

10 000 000
15 000 000
15 000 000
25 000 000
93 000 000

11 306 800
16 960 140
16 960 065
28 266 675
105 151 659

Total

158 000 000

178 540 000

158 000 000

178 645 339

L 352/66

EN

Official Journal of the European Union

13.12.2006

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, implying 6,54 marginal swap points. All bids below 6,54 (for a cumula-
tive amount of EUR 195 million) are fully satisfied. At 6,54 the percentage of allotment is:

197 – 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:

The allotment results can be summarised as follows:

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

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).

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 USD

Exchange rate

Buy EUR

Sell USD

1,1300
1,1300
1,1300
1,1300
1,1300
1,1300
1,1300
1,1300
1,1300

10 000 000
10 000 000
20 000 000
40 000 000
80 000 000
35 000 000
2 000 000

11 300 000
11 300 000
22 600 000
45 200 000
90 400 000
39 550 000
2 260 000

1,130623
1,130627
1,130632
1,130636
1,130641
1,130645
1,130649
1,130654
1,130658

10 000 000
10 000 000
20 000 000
40 000 000
80 000 000
35 000 000
2 000 000

11 306 270
11 306 320
22 612 720
45 225 640
90 451 600
39 572 715
2 261 308

Total

197 000 000

222 610 000

197 000 000

222 736 573

13.12.2006

EN

Official Journal of the European Union

L 352/67

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 coun-

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

and

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

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

The characteristics of the underlying marketable assets used by the counterparty to cover these operations are speci-
fied in Table 1 below.

Table 1 Underlying marketable assets used in the transactions

Characteristics

Name

Asset class

Maturity date

Coupon
definition

Coupon
frequency

Residual
maturity

Asset A

Asset B

Asset-backed instrument 29.08.2006

Fixed rate

6 months

2 years

Central government
bond

19.11.2008

Variable rate

12 months

4 years

Haircut

3,50 %

0,50 %

Asset C

Corporate bond

12.05.2015

Zero coupon
rate

>10 years

15,00 %

28.07.2004

29.07.2004

30.07.2004

2.08.2004

3.08.2004

4.08.2004

5.08.2004

Prices in percentages (including accrued interest) (*)

102,63

101,98

98,35

100,55

97,95

101,03

98,15

100,76

98,56

101,02

98,73

55,01

101,24

98,57

54,87

(*) 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 inter-
est 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 deliv-
ers 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.

L 352/68

EN

Official Journal of the European Union

13.12.2006

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 initi-
ated 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 collat-
eral coverage (2).

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 resulting in any margin call for the trans-

actions entered into on 28 and 29 July 2004.

5. On 4 August 2004, the counterparty repays the liquidity provided under the main refinancing operation initi-
ated 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 that requires a valuation haircut of 15 %, the correspond-
ing 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 (3).

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, on the 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) 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.

(2) National central banks may perform margin calls in cash rather than securities.
(3)

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.

Table 2: Earmarking system

Date

Outstanding
transactions

Start date

End date

Interest rate

Liquidity provided

Accrued
interest

Total amount
to be covered

Lower trigger
amount

Upper trigger
amount

Adjusted
market value

Margin call

28.07.2004

Main refinancing

28.07.2004

04.08.2004

4,24

50 000 000

—

50 000 000

49 750 000

50 250 000

50 113 203

29.07.2004

Main refinancing

28.07.2004

04.08.2004

4,24

50 000 000

5 889

50 005 889

49 755 859

50 255 918

49 795 814

Longer-term
refinancing

29.07.2004

27.10.2004

4,56

45 000 000

—

45 000 000

44 775 000

45 225 000

45 130 810

—

—

—

30.07.2004

Main refinancing

28.07.2004

04.08.2004

4,24

50 000 000

11 778

50 011 778

49 761 719

50 261 837

49 097 560

– 914 218

Longer-term
refinancing

29.07.2004

27.10.2004

4,56

45 000 000

5 700

45 005 700

44 780 672

45 230 729

44 741 520

– 264 180

02.08.2004

Main refinancing

28.07.2004

04.08.2004

4,24

50 000 000

29 444

50 029 444

49 779 297

50 279 592

50 258 131

Longer-term
refinancing

29.07.2004

27.10.2004

4,56

45 000 000

22 800

45 022 800

44 797 686

45 247 914

45 152 222

03.08.2004

Main refinancing

28.07.2004

4.08.2004

4,24

50 000 000

35 333

50 035 333

49 785 157

50 285 510

50 123 818

Longer-term
refinancing

29.07.2004

27.10.2004

4,56

45 000 000

28 500

45 028 500

44 803 358

45 253 643

45 200 595

04.08.2004

Main refinancing

04.08.2004

11.08.2004

4,26

35 000 000

—

35 000 000

34 825 000

35 175 000

35 068 875

—

—

—

—

—

Longer-term
refinancing

29.07.2004

27.10.2004

4,56

45 000 000

34 200

45 034 200

44 809 029

45 259 371

45 296 029

261 829

05.08.2004

Main refinancing

04.08.2004

11.08.2004

4,26

35 000 000

4 142

35 004 142

34 829 121

35 179 162

34 979 625

Longer-term
refinancing

29.07.2004

27.10.2004

4,56

45 000 000

39 900

45 039 900

44 814 701

45 265 100

45 043 420

—

—

.

1
3
1
2
2
0
0
6

.

E
N

O

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f
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i
a
l

J
o
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a
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/
6
9

Table 3: Pooling system

Date

Outstanding
transactions

Start date

End date

Interest rate

Liquidity provided Accrued interest

Total
amount to be
covered

Lower trigger
amount (1)

Upper trigger
amount (2)

Adjusted
market value

Margin call

28.07.2004

Main refinancing

28.07.2004

04.08.2004

4,24

50 000 000

—

50 000 000

49 750 000

29.07.2004

Main refinancing

28.07.2004

04.08.2004

4,24

50 000 000

5 889

95 005 889

94 530 859

Longer-term
refinancing

29.07.2004

27.10.2004

4,56

45 000 000

—

30.07.2004

Main refinancing

28.07.2004

04.08.2004

4,24

50 000 000

11 778

95 017 478

94 542 390

Longer-term
refinancing

29.07.2004

27.10.2004

4,56

45 000 000

5 700

02.08.2004

Main refinancing

28.07.2004

04.08.2004

4,24

50 000 000

29 444

95 052 244

94 576 983

Longer-term
refinancing

29.07.2004

27.10.2004

4,56

45 000 000

22 800

03.08.2004

Main refinancing

28.07.2004

04.08.2004

4,24

50 000 000

35 333

95 063 833

94 588 514

Longer-term
refinancing

29.07.2004

27.10.2004

4,56

45 000 000

28 500

04.08.2004

Main refinancing

04.08.2004

11.08.2004

4,26

35 000 000

—

80 034 200

79 634 029

Longer-term
refinancing

29.07.2004

27.10.2004

4,56

45 000 000

34 200

05.08.2004

Main refinancing

04.08.2004

11.08.2004

4,26

35 000 000

4 142

80 044 042

79 643 821

Not
applicable

Not
applicable

Not
applicable

Not
applicable

Not
applicable

Not
applicable

Not
applicable

50 113 203

94 926 624

—

—

93 839 080

– 1 178 398

95 487 902

—

95 399 949

—

80 333 458

—

80 248 396

—

Longer-term
refinancing

29.07.2004

27.10.2004

4,56

45 000 000

39 900

(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.

L

3
5
2
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7
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1
3
1
2
2
0
0
6

.

13.12.2006

EN

Official Journal of the European Union

L 352/71

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 Euro-
system’s minimum reserve system provides 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 immo-
bilised 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/debtor/guarantor of debt instruments by reason of
the fact that: (i) the counterparty owns 20 % or more of the capital of the issuer/debtor/guarantor, or one or more under-
takings in which the counterparty owns the majority of the capital own 20 % or more of the capital of the
issuer/debtor/guarantor, 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/debtor/guarantor; or (ii) the issuer/debtor/guarantor
owns 20 % or more of the capital of the counterparty, or one or more undertakings in which the issuer/debtor/guarantor
owns the majority of the capital own 20 % or more of the capital of the counterparty, or the issuer/debtor/guarantor and
one or more undertakings in which the issuer/debtor/guarantor 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/debtor/guarantor, 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 earmark-
ing 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.

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 cen-
tral 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).

L 352/72

EN

Official Journal of the European Union

13.12.2006

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

Credit institution: an institution covered by the definition contained in Article 4 (1) of Directive 2006/48/EC of the
European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit
institutions (recast). 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 person, other than
those under (i), which issues means of payment in the form of electronic money.

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.

Default event: an event referred to in the Eurosystem credit assessment framework (ECAF) that is covered by the
definition contained in the Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating
to the taking up and pursuit of the business of credit institutions (recast) and Directive 2006/49/EC of the European Par-
liament and of the Council of 14 June 2006 on the capital adequacy of investment firms and credit institutions (recast)
(together referred to as the ‘Capital Requirements Directive’ (CRD)). Thus, a default event occurs when ‘(a) the credit insti-
tution considers that the obligor is unlikely to pay its credit obligations to the credit institution, the parent undertaking or
any of its subsidiaries in full, without recourse by the credit institution to actions such as realising security (if held),’ and/or
‘(b) the obligor is past due more than 90 days on any material credit obligation to the credit institution, the parent under-
taking or any of its subsidiaries.’

Delivery-versus-payment or delivery-against-payment system: a mechanism in an exchange-for-value settlement sys-
tem 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.

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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 ear-
marked for each individual transaction.

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

Electronic money: the 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.

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 accor-
dance 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): 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: 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.

Eurosystem credit assessment framework (ECAF): the set of procedures, rules and techniques that ensures that the
Eurosystem’s requirement of high credit standards for all eligible assets is met. In the establishment of high credit stan-
dards, the Eurosystem differentiates between marketable and non-marketable assets. In the assessment of the credit stan-
dard of eligible assets, the Eurosystem takes into account credit assessment information from credit assessment systems
belonging to one of four sources, namely external credit assessment institutions (ECAIs), NCBs’ in-house credit assess-
ment systems (ICASs), counterparties’internal ratings-based (IRB) systems or third-party providers’ rating tools (RTs).
In addition, in the assessment of the credit standard, the Eurosystem takes into account institutional criteria and features
that guarantee similar protection for the instrument holder such as guarantees. The Eurosystem’s benchmark for establish-
ing its minimum requirement for high credit standards (credit quality threshold) is defined in terms of a ‘single A’ credit
assessment. The Eurosystem considers a probability of default (PD) of 0,10 % over a one-year horizon to be equivalent to
a ‘single A’ credit assessment.

External credit assessment institution (ECAI): a credit quality assessment source provided for in the Eurosystem credit
assessment framework (ECAF) that comprises those institutions whose credit assessments may be used by credit insti-
tutions for the determination of risk weight exposures according to the Capital Requirements Directive. These institutions
are subject to a formal recognition and validation process by the national supervisors.

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.

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Fixed rate tender: a tender procedure where the interest rate is specified in advance by the central bank and participat-
ing 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.

In-house credit assessment system (ICAS): a credit quality assessment source provided for in the Eurosystem credit
assessment framework (ECAF) that currently comprises the four credit assessment systems operated by the Deutsche
Bundesbank, the Banco de España, the Banque de France and the Oesterreichische Nationalbank.

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.

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.

Internal rating-based (IRB) system: a credit quality assessment source provided for in the Eurosystem credit assess-
ment framework (ECAF) that comprises the internal systems of those counterparties whose credit assessments may be
used by credit institutions for the determination of risk weight exposures according to the Capital Requirements Directive.
These systems are subject to a formal recognition and validation process by the national supervisors.

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

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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 mea-
sured, 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 assets, the residual maturity of which is within a certain range of values, e.g. the three-to-
five-year maturity bucket.

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
Eurosystem may impose maximum bid limits in order to avoid disproportionately large bids from individual
counterparties.

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

Member State: as used in this document, 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): one of a class of 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): as used in this document, a central bank of an EU Member State which has adopted the
single currency in accordance with the Treaty.

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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 on 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 on a certain date (or dates) before the start of the coupon accrual period.

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 min-
utes and are restricted to a limited set of counterparties.

Rating tools (RTs): a credit quality assessment source provided for in the Eurosystem credit assessment framework
(ECAF) that comprises third-party applications that assess the credit quality of debtors by using, among other informa-
tion, audited accounts. These applications need to be individually accepted by the Eurosystem before becoming part of
the ECAF.

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 repur-
chase 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 corre-
sponding 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 main-
tained. 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.

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Reserve requirement: the requirement for institutions to hold minimum reserves with the central bank. Within the mini-
mum 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: the 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 agree-
ment 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 creditinstitutions 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.

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 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 ten-
ders 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 trans-
action 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.

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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.

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 often 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): a certain level of the market value of the underlying assets used in the Eurosys-
tem’s liquidity-providing reverse transactions that the Eurosystem requires 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 under-
lying 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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ANNEX 3

SELECTION OF COUNTERPARTIES FOR FOREIGN EXCHANGE INTERVENTION OPERATIONS
AND FOREIGN EXCHANGE SWAPS FOR MONETARY POLICY PURPOSES

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 crite-
rion, 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 neces-
sary 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 for-
eign exchange intervention operations.

The national central banks may apply limit-based systems in order to control credit exposures vis-à-vis individual coun-
terparties 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), as amended (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 particular, its task to define and implement the monetary policy of the Community in accordance with
Article 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 mon-
etary financial institutions (MFI) sector, the principal aim of which is to provide the ECB with a comprehensive statis-
tical picture of monetary developments covering the aggregated financial assets and liabilities of MFIs 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 com-
parable terms and conditions throughout the euro area. Although the data are collected in a decentralised way by
NCBs 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 defini-
tion 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 Council Regulation (EC) No 2533/98. The
reporting obligations are therefore clearly defined and any discretion exercised by the ECB when verifying or compul-
sorily collecting statistical information follows identifiable principles.

Third, the ECB must minimise the reporting burden involved (see Article 3 (a) of Council Regulation (EC) No 2533/98).
Therefore, the statistical material collected by NCBs 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).

(1) The content of this annex is provided for information purposes only.
(2) OJ L 318 of 27 November 1998, page 8.
(3) OJ L 333 of 17 December 2001, page 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 of 2 October 2003, page 10.

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The articles of Regulation ECB/2001/13, as amended, restrict themselves to defining, in general terms, the actual report-
ing population, its reporting obligations and the principles according to which the ECB and the NCBs normally exer-
cise 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.

NCBs 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 NCBs 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 informa-
tion related to their balance sheet on a monthly basis. Further information is required on a quarterly basis. The statis-
tical information to be reported is further specified in Annex I to Regulation ECB/2001/13.

The relevant statistical data are collected by the NCBs, which must define the reporting procedures to be followed.
Regulation ECB/2001/13, as amended, does not prevent NCBs 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 report-
ing framework which the NCBs 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 an NCB as defined above is that the small MFIs concerned are
subject to reduced reporting obligations (implying, inter alia, only quarterly reporting) which are 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 statis-
tical 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 NCBs 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 9 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 break-
down 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).

Cells in thin print are reported solely by credit institutions subject to reserve requirements.

Table 1

Data required to be provided at monthly frequency (stocks)

L

3
5
2
/
8
2

E
N

O

f
f
i
c
i
a
l

J
o
u
r
n
a
l

o
f

t
h
e

E
u
r
o
p
e
a
n
U
n
o
n

i

.

1
3
1
2
2
0
0
6

.

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Furthermore, depending on the national collection systems and without prejudice to full compliance with the defini-
tions and classification principles of the MFI balance sheet set out in Regulation ECB/2001/13, credit institutions sub-
ject to reserve requirements may alternatively report the data necessary to calculate the reserve base, except those on
negotiable instruments, in accordance with Table 1a, provided that no bold printed positions of Table 1 are affected.

Annex II to Regulation ECB/2001/13 contains specific and transitional provisions and provisions on mergers involv-
ing 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 main-
tenance periods are based on end-of-quarter data collected by the NCBs.

Simplified reporting of data required 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 + 9,1 x
9.2e + 9,2 x
9.3e + 9,3 x
9.4e + 9,4 x

of which:

9.2e + 9,2 x with agreed maturity over two

years

of which:

9.3 e + 9,3 x redeemable at notice over two

Voluntary reporting

years

of which:

9.4e + 9,4 x repos

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

NEGOTIABLE INSTRUMENTS
(Euro and foreign currencies combined)

11 DEBT SECURITIES ISSUED

11 e + 11 x with agreed maturity up to two years

11 DEBT SECURITIES ISSUED

11 e + 11 x with agreed maturity over two years

The annex also includes provisions on reporting on a consolidated basis. On receiving authorisation from the Euro-
pean Central Bank, credit institutions subject to minimum reserves may carry out consolidated statistical reporting for
a group of credit institutions subject to minimum reserves within a single national territory, provided that all the insti-
tutions 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.

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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 sta-
tistical 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 calcula-
tion of reserve requirements, as set out in Article 3 of Regulation ECB/2003/9, apply. Moreover, the relevant NCB may
authorise the acquiring institution to fulfil its obligation to report statistical information through temporary proce-
dures. 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 obli-
gation 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 NCB, 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 to fulfil its statistical reporting obligations relat-
ing to the determination of reserve requirements.

6. Verification and compulsory collection

The ECB itself and the NCBs normally exercise the competence to verify and compulsorily collect statistical informa-
tion 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 NCBs in the field of statistics and
Council 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 informa-
tion 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 Council 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

THE EUROSYSTEM WEBSITES

Central Bank

Website

European Central

www.ecb.int

Bank 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

Banque centrale du Luxembourg

De Nederlandsche Bank

Oesterreichische Nationalbank

Banco de Portugal

Banka Slovenije

Suomen Pankki – Finlands Bank

www.bancaditalia.it

www.bcl.lu

www.dnb.nl

www.oenb.at

www.bportugal.pt

www.bsi.si

www.bof.fi

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ANNEX 6

PROCEDURES AND SANCTIONS TO BE APPLIED IN THE EVENT OF NON-COMPLIANCE WITH
COUNTERPARTY OBLIGATIONS

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 facil-
ity (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 coun-
terparty 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 the marginal lending rate plus 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 unautho-
rised 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. Suspension after infringements of rules related to tender operations and bilateral transactions

If a third infringement of the same type occurs within a 12-month period, the Eurosystem shall suspend counterpar-
ties 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:

(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;

(1) 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.

(2) 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.

(3) 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.
(4) 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 facility.

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(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

(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 sub-section c) below, to any
other successive infringement during each 12-month period.

2.2. Suspension after infringements of rules for underlying assets

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 sub-section c) below, to any
other successive infringement during each 12-month period.

2.3. Suspension from access to all future monetary policy operations for a certain period in exceptional cases

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, consider-
ation could be given, in addition to a financial penalty calculated in accordance with Section 1 above, to the suspen-
sion of a counterparty from access to all future monetary policy operations for a period of three months.

2.4.

Institutions located in other Member States

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.

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ANNEX 7

CREATION OF VALID SECURITY OVER CREDIT CLAIMS

In order to ensure that a valid security is created over credit claims and that the credit claims can be swiftly realised in the
event of a counterparty default, the following additional legal requirements have to be met:

— Verification of the existence of credit claims: As a minimum, NCBs shall use the following measures to verify the exist-
ence of credit claims submitted to the Eurosystem as collateral: (i) self-certification and undertaking by the counter-
party to the NCB, at least every quarter, with respect to the existence of the credit claims submitted as collateral,
which could be replaced with cross-checks of information held in central credit registers, where these exist; (ii) one-
off verification by NCBs, supervisors or external auditors of the procedures used by the counterparty to submit the
information on the existence of credit claims to the Eurosystem; and (iii) random checks by the NCBs, relevant credit
registers, supervisors or external auditors of the quality and accuracy of the self-certification.

The quarterly self-certification and undertaking under (i) above includes the requirement on Eurosystem counterpar-
ties to do the following in writing:

— confirm and warrant compliance of credit claims submitted to an NCB with the eligibility criteria applied by the

Eurosystem;

— confirm and warrant that no credit claim submitted as an underlying asset is being simultaneously used as col-
lateral to the benefit of any third party and undertake that the counterparty shall not mobilise any credit claim
as collateral to any third party;

and

— confirm and warrant to communicate to the relevant NCB immediately but no later than within the course of
the next business day any event which materially affects the actual contractual relationship between the coun-
terparty and the NCB in question, in particular early, partial or total repayments, downgrades and material
changes in the conditions of the credit claim.

In order for such checks to take place as set out under (ii) and (iii) above (one-off verification and random checks),
supervisors or, especially, NCBs or external auditors must be authorised to carry out this investigation, if necessary
contractually or in accordance with the applicable national requirements.

— Notification of the debtor about the mobilisation of the credit claim or registration of such mobilisation: Regarding notification
of the debtor about the mobilisation of the credit claim as collateral, taking into consideration the specific features of
different jurisdictions involved, the following is required:

a)

b)

In certain Member States where the notification of the debtor about the mobilisation of the credit claim as col-
lateral is a precondition of valid mobilisation under national law, as specified by the applicable national docu-
mentation, ex ante notification of the debtor shall be a legal requirement for the eligibility of the credit claim. Ex
ante notification of the debtor for eligibility purposes requires that the debtor be notified by the counterparty or
the NCB (as specified by the applicable national documentation) about the credit claim being mobilised as col-
lateral by the counterparty to the benefit of the NCB in advance or at the time of its actual mobilisation as
collateral.

In certain other Member States where registration with public effect of the mobilisation of the credit claim as
collateral is a precondition for valid mobilisation or, in certain cases, a precondition for the priority of the credit
claim under national law, as specified by the applicable national documentation, such registration shall be required
in advance or at the time of its actual mobilisation as collateral.

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c)

Finally, in Member States where ex ante notification of the debtor or registration with public effect of the mobili-
sation of the credit claim as collateral is not required in accordance with a) and b) above, as specified by appli-
cable national documentation, ex post notification of the debtor is required. Ex post notification of the debtor
requires that the debtor be notified by the counterparty or the NCB (as specified by the national documentation)
about the credit claim being mobilised as collateral by the counterparty to the benefit of the NCB immediately
following a credit event. ‘Credit event’ means default or similar events as further defined by the applicable
national documentation.

There is no notification requirement in cases where the credit claims are bearer instruments for which appli-
cable national law does not require notification. In such cases, there is a requirement to physically transfer such
bearer instruments to the NCB in question in advance or at the time of their actual mobilisation as collateral.

The above are minimum requirements. NCBs may decide to require ex ante notification or registration in addi-
tion to the cases above, as specified by applicable national documentation.

— Absence of restrictions related to banking secrecy and confidentiality: The counterparty shall not be under the obligation to
obtain the debtor’s approval for disclosure of information about the credit claim and the debtor that are required by
the Eurosystem for the purpose of ensuring that a valid security is created over credit claims and that the credit
claims can be swiftly realised in the event of a counterparty default. The counterparty and the debtor shall agree
contractually that the debtor unconditionally consents to the disclosure of such details about the credit claim and the
debtor to the Eurosystem. No such provision is necessary if there are no rules restricting the provision of such infor-
mation under national law, as specified in the applicable national documentation.

— Absence of restrictions on the mobilisation of the credit claim: Counterparties shall ensure that credit claims are fully trans-
ferable and can be mobilised without restriction as collateral for the benefit of the Eurosystem. There should not be
any restrictive stipulation regarding mobilisation in the credit claim agreement or in other contractual arrangements
between the counterparty and the debtor, unless national legislation specifically provides for the privileged position
of the Eurosystem with respect to mobilisation of collateral, regardless of eventual contractual restrictions.

— Absence of restrictions on the realisation of the credit claim: The credit claim agreement or other contractual arrangements
between the counterparty and the debtor should not contain any restrictions regarding the realisation of the credit
claim used as collateral, including any form, time or other requirement with regard to realisation.’