Implementation of the Eurosystem monetary policy framework

KEY POINTS

In order to achieve its primary objective of maintaining price stability for the euro area as a whole, the Eurosystem uses a set of monetary policy instruments and procedures. These provide the operational framework for the implementation of monetary policy in practice.

The guideline contains rules on the Eurosystem monetary policy instruments and procedures.

• The monetary policy instruments are:
  • open market operations, aiming to steer interest rates, regulate the money supply in the financial market and signal the monetary policy stance in the euro area;
  • standing facilities, aiming to provide and absorb overnight liquidity;
  • minimum reserve requirements (the minimum amount of reserves a commercial bank must hold with their national central bank (NCB)), which are specified in Regulation (EC) No 2531/98 and Regulation (EU) 2021/378 (see relevant summary).
• The Eurosystem open market operations are executed either through tender procedures¹ or through bilateral procedures, where the NCBs, or, if appropriate, the European Central Bank (ECB), deal directly with one or more counterparties², or through stock exchanges or market agents, without using tender procedures.

Eligible counterparties

Counterparties to the Eurosystem’s monetary policy operations³ must fulfil the following criteria to participate in these operations:

• meet the Eurosystem’s minimum reserve requirements;
• be supervised by relevant authorities under Directive 2013/36/EU on prudential supervision of credit institutions (see relevant summary) and Regulation (EU) No 575/2013 on prudential requirements for credit institutions (see relevant summary);
• be financially sound;
• satisfy all the contractual and regulatory requirements specified by the ECB or the NCB.

Eligible assets

To participate in Eurosystem credit operations, counterparties must provide the Eurosystem with assets that are accepted as collateral for such operations. Rules on the mobilisation and management of collateral are laid down in Guideline (EU) 2024/3129 of the European Central Bank (ECB/2024/22).

Sanctions for failure to comply with counterparty obligations

The Eurosystem can impose sanctions, both financial and non-financial, on counterparties that fail to satisfy the minimum reserve requirements or to comply with operational rules.

Discretionary measures

The Eurosystem may opt to do the following in case of concerns about the counterparty’s financial soundness or other justified concerns:

• suspend, limit or exclude, on the grounds of caution, a counterparty’s access to its monetary policy operations, including when own funds requirements are not met or information on capital or leverage ratios is incomplete or not made available;
• reject or limit the use of assets if it considers that an issue, issuer, debtor or guarantor fails to meet the system’s credit quality requirements or if any counterparty is subject to restrictive measures or its access to Eurosystem monetary policy operations has been suspended, limited or excluded;
• limit the counterparties’ access to Eurosystem monetary policy operations if they are deemed to be failing or likely to fail by the relevant authorities.

The guideline also contains a number of rules governing NCBs’ contractual or regulatory arrangements common to all Eurosystem monetary policy operations, information sharing and compliance with anti-money laundering and counter-terrorist financing legislation.