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Application of minimum reserves by the ECB

The main objective of minimum reserves is the stabilisation of money market rates. Minimum reserves allow credit institutions to smooth out fluctuations in liquidity such as those caused by the demand for banknotes. In addition, the reserves that the Eurosystem is required to hold highlight and make evident the structural need for refinancing, which would facilitate the management of liquidities on the money market by the European Central Bank (ECB).

ACT

Council Regulation (EC) No 2531/98 of 23 November 1998 concerning the application of minimum reserves by the European Central Bank [Official Journal L 318 of 27.11.1998] [See amending acts].

SUMMARY

This Regulation ensures that the minimum reserve arrangements applicable to credit institutions and their branches in Member States are the same throughout the euro area. Minimum reserves as a monetary policy instrument are used mainly to stabilise interest rates and to dampen autonomous fluctuations in money market liquidity by adjusting reserve requirements. The Regulation first sets out definitions of the following terms:

  • institution: any entity in a participating Member State which the European Central Bank (ECB) may require to hold minimum reserves;
  • reserve ratio: such percentage of the basis for minimum reserves as the ECB may specify in accordance with Article 19.1 of its Statute. Reserve ratios must not exceed 10% of any relevant liabilities forming part of the basis for minimum reserves but may be 0%. This approach reflects the need to give the ECB the necessary flexibility to carry out its tasks and takes into account the reserve ratios imposed by the national central banks which currently require reserves to be set up. At the same time, the Regulation seeks to ensure that the system of minimum reserves is the same throughout the euro area. In this way, it will not lead to the relocation of credit institutions;
  • sanctions: fines, periodic penalty payments, penalty interest and non-interest-bearing deposits.

Giving practical effect to the ESCB Statute

The Regulation is necessary to give practical effect to Article 19.2 of the Statute of the European System of Central Banks (ESCB), which provides that "the Council shall define the basis for minimum reserves "(i.e. deposits, debt securities issued, money market instruments) "and the maximum permissible ratios between those reserves and their basis, as well as the appropriate sanctions in cases of non-compliance".

Exemptions and collection of information

The ECB may, on a non-discriminatory basis, exempt institutions from minimum reserves in accordance with its own criteria. It has the right to collect and to verify the information necessary for the application of minimum reserves. The right to verify data includes the right to:

  • require the submission of documents;
  • examine the books and records of the institutions;
  • take copies or extracts from such books and records;
  • obtain written or oral explanations.

This right makes for a proper balance between the rights of the institutions subject to the obligations and the needs of the ECB in performing its tasks. The ECB may also delegate the exercise of these rights to the national banks.

Sanctions

Where institutions fail to meet the obligations laid down in the Regulation and ECB regulations or decisions associated with it, the ECB may impose one of the following sanctions:

  • a payment of up to 5 percentage points above the ESCB's marginal lending rate applied to the amount of the minimum reserves which the relevant institution fails to provide;
  • a payment of twice the ESCB's marginal lending rate applied to the amount of the minimum reserves which the relevant institution fails to provide;
  • the requirement for the relevant institution to establish a non-interest-bearing deposit with the ECB or the national central banks of up to three times the amount of the minimum reserves which the relevant institution fails to provide. The maturity of the deposit must not exceed the period during which the institution fails to hold the minimum reserves.

Entry into force

Article 5 of the Regulation, which concerns regulatory power (right to exempt institutions, basis for minimum reserves, reserve ratios), has been applicable from the date of entry into force of the Regulation, i.e. 27 November 1998. The other articles have been applicable since 1 January 1999, the date of entry into force of the third stage of economic and monetary union.

Regulation (EC) No 134/2002

This Regulation extends to two months the period for the Governing Council to take a decision in order to implement the review procedure referred to in Article 3 (7) of Regulation (EC) No 2532/98.

REFERENCES

ActEntry into forceDeadline for transposition in the Member StatesOfficial Journal
Regulation (EC) No 2531/98

27.11.1998

-

OJ L 318 of 27.11.1998

Amending act(s)Entry into forceDeadline for transposition in the Member StatesOfficial Journal
Regulation (EC) No 134/2002

26.1.2002

-

OJ L 24 of 26.1.2002

RELATED ACTS

Regulation (EC) No25/2009 of the European Central Bank of 19 December 2008 concerning the balance sheet of the monetary financial institutions sector (Recast) [Official Journal L 15 of 20 January 2009].
Monetary financial institutions (MFI) are subject to the requirement to report on their consolidated accounts to the European Central Bank (ECB). These institutions are known as credit institutions or financial institutions that receive deposits, grant loans and make investments in securities for their own accounts. They are mainly central banks, credit institutions (which can be an electronic money institution within the meaning of Directive 2006/48/EC) and monetary collective investment undertakings (CIUs) or money market funds.

Monthly and annual statistical reporting is used to calculate the reserve base of the ECB. The reporting requirement can be reduced for small MFIs, MMFs and electronic money institutions, which are considered as non-financial corporations.

This Regulation establishes additional statistical reporting requirements for securitisation transactions and loan disposal (regarding the net flow of securitised or disposed of loans and the end-of-quarter and end-of-period amounts outstanding).

Regulation (EC) No1745/2003 of the European Central Bank of 12 September 2003 on the application of minimum reserves (ECB/2003/9) [Official Journal L 250 of 2.10.2003].
This Regulation lays down the definitions, the methods for calculating and creating obligatory reserves, and reporting and verification rules. It will replace Regulation (EC) No 2818/98 with effect from 23 January 2004 and with effect from 9 March 2004 for certain provisions of Article 5. The new Regulation groups together in a single text the provisions of the old regulation and the significant amendments thereto and introduces new amendments concerning:

  • the deposit of reserves in the national central banks of the euro area;
  • the methods for calculating and creating reserves;
  • the reporting and verification rules;
  • the timetable for the maintenance periods;
  • procedures for the notification and acknowledgement of minimum reserves.

See consolidated version (pdf )

Introduction of the euro

Decision2008/892/EC of the European Central Bank of 28 October 2008 on the transitional provisions for the application of the minimum reserves by the European Central Bank following the introduction of the euro in Slovakia (ECB/2008/14).

Regulation (EC) No 1348/2007 of the European Central Bank of 9 November 2007 concerning transitional provisions for the application of minimum reserves by the European Central Bank following the introduction of the euro in Cyprus and Malta (ECB/2007/11).

Regulation (EC) No1637/2006 of the European Central Bank of 2 November 2006 concerning transitional provisions for the application of minimum reserves by the European Central Bank following the introduction of the euro in Slovenia(ECB/2006/15).

Regulation (EC) No2548/2000 of the European Central Bank of 2 November 2000 concerning transitional provisions for the application of minimum reserves by the European Central Bank following the introduction of the euro in Greece (ECB/2000/11) [Official Journal L 291 of 18.11.2000].

Last updated: 29.05.2009

See also

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