Opinion of the European Central Bank of 13 November 2008 at the request of Lietuvos bankas on a draft resolution amending the rules on reserve requirements for credit institutions (CON/2008/66)
Date: 2008-11-13
Institutions: European Central Bank
Subjects: Lithuania, credit institution, liquidity control, monetary policy, reserves

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 13 November 2008  

at the request of Lietuvos bankas 

on a draft resolution amending the rules on reserve requirements for credit institutions 

(CON/2008/66) 

Introduction and legal basis 

On 5 November 2008 the European Central Bank (ECB) received a request from Lietuvos bankas for an 

opinion  on  a  draft  resolution  amending  the  rules  on  reserve  requirements  for  credit  institutions  as 

approved by Resolution No 38 of 14 March 2002 of the Board of Lietuvos bankas (hereinafter the ‘draft 

resolution’). Some of the amendments contained in the draft resolution, in particular the reduction in the 

reserve ratio from 6 % to 4 %, were adopted by the Board of Lietuvos bankas on 6 November 2008 and 

entered into force immediately.  

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

European  Community  and  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 resolution relates to instruments of monetary policy of a Member State that has not adopted 

the euro. 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 resolution 

1.1  The purpose of the draft resolution is: (a) to release part of the resources of credit institutions by 

allowing  them  to  use  eligible  collateral  which  they  hold  to  fulfil  their  reserve  requirements;  and 

(b) to create more flexible liquidity management conditions for credit institutions.  

1.2  Specifically,  the  draft  resolution  provides  for  an  amendment  of  the  composition  of  minimum 

reserves, i.e. it allows credit institutions temporarily, until 23 April 2009, to maintain up to 50 % of 

their  minimum  reserves  in  eligible  securities,  the  eligibility  criteria  of  which  are  defined  in  the 

proposed new Annex 3 to the rules on reserve requirements for credit institutions. 

2. 

General observations  

2.1  Concerning  the  reduction  of  the  reserve  ratio  from  6  %  to  4  %,  which  has  already  entered  into 

force, the ECB understands the need for an accelerated procedure. However, this does not prejudice 

1  

OJ L 189, 3.7.1998, p. 42.  

 
 
 
 
 
                                                 
the  duty  of  national  authorities  under  Article  105(4)  of  the  Treaty  to  consult  the  ECB  on  draft 

legislative provisions falling within its fields of competence. The ECB would therefore appreciate 

receiving future consultations earlier, even on initial drafts of legislation, to allow more time for it 

to prepare an opinion. 

2.2  The ECB notes that although Member States that have not adopted the euro retain their powers in 

the  field  of  monetary  policy,  it  is  nevertheless  beneficial  for  them  to  achieve  consistency  with 

Eurosystem  standards  so  that  credit  institutions  in  those  Member  States  can  become  acquainted 

with  the  reserve  requirements  that  will  apply  to  them  when  the  euro  is  introduced.  In  its  past 
opinion on the Lithuanian minimum reserves regime2, the ECB emphasised in particular the need 

for  further  alignment  of  the  Lithuanian  minimum  reserves  regime  with  Eurosystem  standards.  In 

particular, the ECB made the point that Lithuanian credit unions should also be subject to reserve 
requirements3. Consequently, it should be noted that all comments that the ECB made previously 

concerning the Lithuanian minimum reserves regime still remain valid. 

3. 

Specific comments  

3.1  The aim of the draft resolution is to temporarily amend the composition of minimum reserves in 

Lithuania, namely to allow up to 50 % of minimum reserves to be held on securities accounts of a 

credit  institution  on  which  eligible  securities  are  held  as  an  alternative  to  being  held  on  reserve 

(settlement) accounts.  

3.2  Although the ECB understands that this temporary measure aims to address ongoing tensions in the 

money  market,  the  ECB  has  the  following  observations.  First,  it  is  questionable  whether  this 

measure  is  in  line  with  the  purpose  of  a  minimum  reserves  system,  i.e.  an  instrument  for  the 

performance of money market management and monetary control functions. Second, this measure 

may have potential implications for the risk management of the balance sheet of Lietuvos bankas. 

Third,  using  securities  in  variable  proportions  to  fulfil  part  of  a  credit  institution’s  reserve 

requirements may also create difficulties in the minimum reserves system about the nature of such 

reserves held with Lietuvos bankas. Moreover, the proposed measure would require both Lietuvos 

bankas  and  credit  institutions  to  apply strict  control  measures,  which  are  currently  lacking  in  the 

draft resolution. Fourth, the ECB notes that the securities used to fulfil reserve requirements would 

be accounted for on the basis of their nominal value. Although such calculation is relatively easy to 

implement,  the  ECB  notes  that  the  nominal  value  of  the  securities  may  substantially  differ  from 

their  mark-to-market  value  at  the  end  of  maintenance  period,  especially  in  periods  of  financial 

distress.  Such  a  mechanism  may  therefore  imply  providing  significant  subsidies  to  credit 

institutions and therefore cause distortions in the securities markets.  

2  

3 

See  ECB  Opinion  CON/2005/8  of  1  April  2005  at  the  request  of  Lietuvos  bankas  on  draft  rules  on  minimum  reserve 
requirements for credit institutions. This opinion is available on the ECB’s website at www.ecb.europa.eu. 
See in particular paragraph 14 of ECB Opinion CON/2005/8 in which the ECB stressed that Lithuanian credit unions fall 
under the definition of a credit institution within the meaning of the Consolidated Banking Directive, and will therefore 
be subject to the Eurosystem reserve requirements when Lithuania adopts the euro. 

2 

 
                                                 
3.3  Finally, the ECB notes that the proposal contained in the draft resolution differs substantially from 

the Eurosystem’s reserve requirements framework. Such significant differences would have to be 

eliminated on adoption of the euro by Lithuania. 

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

Done at Frankfurt am Main, 13 November 2008. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

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