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Implementation of the Eurosystem monetary policy framework

Implementation of the Eurosystem monetary policy framework

 

SUMMARY OF:

Guideline (EU) 2015/510 on the implementation of the Eurosystem monetary policy framework

WHAT IS THE AIM OF THE GUIDELINE?

It sets out uniform rules for implementing the Eurosystem monetary policy for EU countries whose currency is the euro.

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 decisions in practice.

The guideline covers the Eurosystem monetary 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;
    • standing facilities, aiming to provide and absorb overnight liquidity;
    • minimum reserve requirements (the minimum amount of reserves a commercial bank must hold with their central bank), which are specified in Regulation (EC) No 2531/98 and Regulation (EC) No 1745/2003 (ECB/2003/9).
  • The Eurosystem open market operations are executed through tender procedures and may either involve tenders or be bilateral procedures, where the central bank deals directly with only one or a few counterparties*.

Eligible counterparties

  • Counterparties to the Eurosystem’s monetary policy operations must fulfil the following criteria to participate in these operations:
    • meet the minimum reserve requirements;
    • be supervised by competent authorities according to Directive 2013/36/EU on prudential supervision of credit institutions and investment firms (see summary) and Regulation (EU) No 575/2013 on prudential requirements for credit institutions and investment firms (see summary);
    • be financially sound;
    • satisfy all the contractual requirements specified by the European Central Bank (ECB) or the national central bank.

Eligible assets

In order to participate in Eurosystem credit operations, counterparties must provide the Eurosystem with assets that are accepted as collateral for such operations. The eligibility of assets is assessed by the national central banks according to the criteria specified in a single framework common to all Eurosystem credit operations.

Sanctions in the event of a failure to comply with counterparty obligations

The Eurosystem can impose penalties, 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 apply certain measures due to concerns about the counterparty’s financial soundness or other justified concerns. It can:

  • suspend, limit or exclude, on grounds of prudence, a counterparty’s access to its monetary policy operations;
  • reject or limit the use of assets if it considers an issue, issuer, debtor or guarantor fails to meet the system’s credit quality requirements;
  • 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 provides for additional minimum common features in relation to Eurosystem monetary policy operations.

They cover the legal relationship between Eurosystem central banks and counterparties and various issues such as the implementation of the guideline defaults, remedies, third-party rights and governing law and jurisdiction.

National central banks may share information with each other on counterparties if necessary to implement the Eurosystem monetary policy.

Counterparties must comply with all anti-money laundering and counter-terrorist financing legislation.

FROM WHEN DOES THE GUIDELINE APPLY?

The guideline has applied since 1 May 2015, except Article 142 (liquidity support in respect of asset-backed securities), which has applied since 1 November 2015.

BACKGROUND

Article 127(2) of the Treaty on the Functioning of the European Union states that the basic tasks of the European System of Central Banks (ESCB) are to:

  • define and implement the monetary policy of the EU;
  • conduct foreign-exchange operations;
  • hold and manage EU countries’ official foreign reserves;
  • promote the smooth operation of payment systems.

The Statute of the ESCB and of the ECB provides that:

  • the ECB and the national central banks may conduct open market and credit operations;
  • the ECB may require credit institutions established in EU countries to hold minimum reserves on accounts with the ECB and national central banks in pursuance of monetary policy objectives.

KEY TERMS

Counterparty: an institution which meets the Eurosystem’s eligibility criteria to access its monetary policy operations.

MAIN DOCUMENT

Guideline (EU) 2015/510 of the European Central Bank of 19 December 2014 on the implementation of the Eurosystem monetary policy framework (ECB/2014/60) (recast) (OJ L 91, 2.4.2015, pp. 3-135)

Successive amendments to Guideline (EU) 2015/510 have been incorporated into the original text. This consolidated version is of documentary value only.

RELATED DOCUMENTS

Consolidated version of the Treaty on the Functioning of the European Union — Part Three — Union policies and internal actions — Title VIII — Economic and monetary policy — Chapter 2 — Monetary policy — Article 127 (ex Article 105 TEC) (OJ C 202, 7.6.2016, pp. 102-103)

Consolidated version of the Treaty on the Functioning of the European Union — Protocol (No 4) on the Statute of the European System of Central Banks and of the European Central Bank (OJ C 202, 7.6.2016, pp. 230-250)

Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (OJ L 176, 27.6.2013, pp. 1-337)

See consolidated version.

Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (OJ L 176, 27.6.2013, pp. 338-436)

See consolidated version.

Regulation (EU) No 549/2013 of the European Parliament and of the Council of 21 May 2013 on the European system of national and regional accounts in the European Union (OJ L 174, 26.6.2013, pp. 1-727)

See consolidated version.

Regulation (EC) No 1745/2003 of the European Central Bank of 12 September 2003 on the application of minimum reserves (ECB/2003/9) (OJ L 250, 2.10.2003, pp. 10-16)

See consolidated version.

Council Regulation (EC) No 2531/98 of 23 November 1998 concerning the application of minimum reserves by the European Central Bank (OJ L 318, 27.11.1998, pp. 1-3)

See consolidated version.

last update 30.10.2020

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