Opinion of the European Central Bank of 23 October 2006 at the request of Latvijas Banka on a draft regulation for the use of Latvijas Banka’s monetary policy instruments (CON/2006/49)
Date: 2006-10-23
Institutions: European Central Bank
Subjects: Eurosystem, Latvia, approximation of laws, monetary policy, national law

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 23 October 2006 

at the request of Latvijas Banka 

on a draft regulation for the use of Latvijas Banka’s monetary policy instruments 

(CON/2006/49) 

Introduction and legal basis 

On 28 September 2006 the European Central Bank (ECB) received a request from Latvijas Banka for an 

opinion on a draft regulation for the use of Latvijas Banka’s monetary policy instruments  (hereinafter the 

‘draft regulation’). 

The  ECB’s  competence  to  deliver  an  opinion  is  based  on  Article  105(4)  of  the  Treaty  establishing  the 

European  Community  and  the  Article 2(2)  of  Council  Decision  98/415/EC  of  29 June  1998  on  the 
consultation of the European Central Bank by national authorities regarding draft legislative provisions1, 

as  the  draft  regulation  relates  to  monetary  policy  instruments.  In  accordance  with  the  first  sentence  of 

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

this opinion. 

1.  

Purpose of the draft regulation 

The main objective of the draft regulation is to implement similar valuation and operational principles for 

all  Latvijas  Banka’s  monetary  policy  instruments  and  to  achieve  further  harmonisation  between  the 

monetary policy operations of Latvijas Banka and the Eurosystem. The draft regulation will replace and 

consolidate a number of current regulations governing Latvijas Banka’s monetary policy operations. 

2. 

General observations  

2.1  Although non-participating Member States retain their powers in the field of monetary policy, it is 

nevertheless  beneficial  for  them  to  gradually  achieve  consistency  with  Eurosystem  standards  so 

that  credit  institutions  operating  in  their  territories  can  become  acquainted  with  the  requirements 

that will apply once these Member States have adopted the euro. Such gradual harmonisation prior 

to  the  adoption  of  the  euro  will  assist  a  smooth  integration  of  the  national  central  bank  into  the 

1  

OJ L 189, 3.7.1998, p. 42.  

 
 
 
 
 
                                                 
Eurosystem.  In  this  regard,  the  draft  regulation  will  contribute  to  the  alignment  of  the  Latvian 

framework for the use of monetary policy instruments with that of the Eurosystem. 

2.2  Nevertheless, the ECB would like to draw Latvijas Banka’s attention to some important remaining 

differences between the Eurosystem’s requirements and Latvia’s monetary policy framework that 

will need to be eliminated before Latvia adopts the euro. 

3. 

Specific observations 

3.1  The Latvian definition of ‘counterparties’ is narrower than that used in the Eurosystem. This is due 

to the inclusion of certain operational criteria as a requirement for all counterparties in Latvia, such 

as the requirement for counterparties to participate in the securities settlement system, whereas the 

Eurosystem  allows  different  operational  criteria  to  apply  for  different  types  of  monetary  policy 

operations. 

Participation  in  the  securities  settlement  system,  or  the  requirement  to  have  an  own  safe-

custody/pledge/securities account, are important operational criteria, but might not be necessary for 

participation in certain operations, such as having access to a deposit facility or for participation in 

tenders for fixed-term deposits etc.     

3.2  With regard to plausibility checks for bids submitted by counterparties, Article 2.1.10 of the draft 

regulation  provides  that  where  the  aggregate  amount  of  a  counterparty's  bid  for  a  tender  exceeds 

the total allotment established by Latvijas Banka, Latvijas Banka will discard all the counterpart’s 
bids for that tender. Section 5.1.4 of the Eurosystem’s General Documentation2 states that national 

central banks may 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. 

2  

‘The  implementation  of  monetary  policy  in  the  euro  area:  General  Documentation  on  Eurosystem  monetary  policy 
instruments and procedures’ annexed to Guideline ECB/2000/7 of 31 August 2000 on monetary policy instruments and 
procedures of the Eurosystem, OJ L 310, 11.12.2000, p. 1. Guidelines as amended by Guideline ECB/2005/2 (OJ L 111, 
2.5.2005, p. 1). 

2 

 
                                                 
3.3  At present, Latvijas Banka accepts only fixed income securities as collateral for its monetary policy 

operations.  The  Eurosystem,  however,  recognises  a  wider  circle  of  assets  as  eligible  collateral: 

asset-backed securities, credit claims and retail mortgage-backed debt instruments are also included 

in the Eurosystem’s single list of eligible collateral. The ECB stresses the importance of preparing 

the  legal  and  operational  framework  necessary  to  enable  Latvijas  Banka  to  admit  such  assets  as 

collateral by the time Latvia adopts the euro. 

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

Done at Frankfurt am Main, 23 October 2006. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

3