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What is ANFA?

Updated on 24 February 2023 (first published on 5 February 2016)

The Agreement on Net Financial Assets (ANFA) is an agreement between the national central banks of the euro area and the European Central Bank (ECB), which together form the Eurosystem. The agreement sets rules and limits for holdings of financial assets which are related to national tasks of the national central banks. Such financial assets of national central banks include, for example, the counterpart to their capital and accounting reserves or other specific liabilities, their foreign reserves and employee pension funds or assets held for general investment purposes.

Holding financial assets not relating to monetary policy is an integral part of the functions exercised by central banks in Europe, and precedes the creation of the euro. When the monetary union was founded, governments decided to mutualise only those central bank functions and tasks that are necessary to conduct a single monetary policy for the whole euro area. At the same time, they decided to keep national central banks as independent institutions that can continue to perform national tasks provided that these tasks do not interfere with the single monetary policy.

In other words: national central banks are financially independent institutions and carry out monetary policy tasks related to the Eurosystem’s primary role of maintaining price stability as well as national tasks. ANFA was established to set an overall limit to the total net amount of financial assets relating to national, non-monetary policy tasks, such that they would not interfere with monetary policy.

The most recent amendments to ANFA were approved by the Governing Council in December 2022 with a view to increasing the efficiency of related processes, while leaving the substance of the agreement largely unchanged.

How does ANFA work?

Why do national central banks hold financial assets that are not related to monetary policy?

Every central bank holds assets that are not related to monetary policy. Monetary policy is set centrally by the Governing Council of the ECB for all countries of the euro area. When the Economic and Monetary Union was founded, governments set out in the European Treaty that tasks related to monetary policy would be transferred to the European level. Beyond monetary policy, the national central banks would be – and are – allowed to conduct national tasks. This principle is laid down in Article 14.4 of the Statute of the ESCB and of the ECB.

In practice, the national central banks currently hold assets not related to monetary policy or the conduct of Eurosystem foreign exchange operations, such as: 

  • gold or foreign currency reserves;
  • investment portfolios, e.g. for staff pension funds;
  • assets held as counter positions to deposits from customers, e.g. foreign central banks or governments. 

At the same time, the national central banks also hold liabilities that are not related to monetary policy, including the abovementioned deposits from foreign central banks or governments. The national central banks can pursue these national tasks as long as their actions do not interfere with the objectives and tasks of the European System of Central Banks (ESCB), especially monetary policy. Likewise, the ECB holds an own funds portfolio related to its capital and accounting reserve, as well as a staff pension fund portfolio.

National central banks already held the abovementioned portfolios before joining the Eurosystem, the revenues of which contribute to the financial income of national central banks. When the euro area was set up, it was noted that these portfolios would contribute to satisfying the demand of the euro area banking system for liquidity, as they would be taken into account when calibrating monetary policy operations. It was not considered a problem from a monetary policy perspective that such portfolios would continue to be managed by the national central banks, outside of monetary policy operations, and that they could be allowed to grow over time at the same (or at a slower) rate as the demand for banknotes and the reserve requirements of the banking system. The Governing Council also considered that, if non-monetary policy portfolios, net of non-monetary policy liabilities, were to grow faster than the demand for liquidity for an extended period of time, then this could put monetary policy at risk. ANFA was established to manage and cap this growth.

What are net financial assets (NFA)?

There are positions that are not directly related to monetary policy on both the asset side and the liability side of a central bank’s balance sheet. The difference between the two sets of positions is defined as net financial assets (NFA). This concept is illustrated below, using the balance sheet of the Eurosystem’s weekly financial statement as of 1 January 2023 as published on the ECB website. A precise definition is given in Annex I of ANFA.

The illustration shows that NFA include, on the asset side, the sum of balance sheet items 1 to 4, 5.6, 6, 7.2, 8 and 9. On the liability side they include items 2.5 and 3 to 12. If you subtract the sum of these liabilities from the sum of the aforementioned assets (i.e. the respective sections highlighted in orange below), you get the Eurosystem’s net financial assets.

What is the value of the Eurosystem’s net financial assets?

As of 1 January 2023, the Eurosystem’s net financial assets stood at -€669 billion, with the average annual Eurosystem net financial assets in 2022 standing at -€730 billion, following a continuous decrease since 2014. This negative figure stems mainly from the increasing liability side of the Eurosystem balance sheet that more than offsets relevant positive developments on the asset side, as explained above. As a comparison, banknotes and minimum reserve requirements have increased at an average rate of 6.7% per year since 2002.

Development of average annual NFA versus banknotes and minimum reserve requirements (MRR) (in € million)

What is ANFA?

ANFA stands for “Agreement on Net Financial Assets”. It is an agreement between the national central banks of the euro area and the ECB, which together form the Eurosystem. The agreement sets the rules for calculating the limits for holdings which are related to national tasks of the national central banks.

Why is it necessary to limit NFA?

ANFA limits the amount of NFA that national central banks can hold. This is necessary to ensure that the Governing Council of the ECB is in full control of the size of the Eurosystem’s balance sheet, thus enabling the effective implementation of monetary policy. Before the financial crisis of 2007-08, the most effective way to implement monetary policy was by making sure that banks had to ask for liquidity from the Eurosystem. A liquidity shortage vis-à-vis the Eurosystem, also referred to as a “liquidity deficit”, was the basis of monetary policy implementation. ANFA protected this liquidity deficit. When the financial crisis struck, it became necessary to provide banks with more liquidity than they actually needed to comply with minimum reserve requirements. Instead of operating with a liquidity deficit, the banking system is now operating with excess liquidity. In this environment, ANFA no longer protects the liquidity deficit, but ensures that excess liquidity does not surpass the level that the Governing Council sees as appropriate for its monetary policy stance.

Does ANFA really equate to permission for national central banks to print as much money as they want?

No, the opposite is the case. ANFA sets a limit for the maximum amount of net financial assets a national central bank can hold in order to ensure that changes in its financial assets and liabilities not related to monetary policy do not interfere with the Eurosystem’s monetary policy.

What influences the maximum amount of NFA under ANFA?

The growing total value of banknotes in circulation and the amount of minimum reserves that banks have to keep at the central bank create a need for liquidity that is satisfied by the Eurosystem’s monetary policy operations and the NFA of the national central banks. By setting the minimum volume for monetary policy operations, an upper limit is determined for the national central banks’ NFA as a residual. If the Governing Council’s objective is a liquidity surplus, ANFA limits the national central banks’ NFA, ensuring that the liquidity surplus does not exceed a certain level.

Why does ANFA limit the net financial assets of the national central banks and not the gross financial assets?

To efficiently implement monetary policy, the amount of liquidity provided by the non-monetary policy operations of national central banks has to be controlled. Every asset on a central bank’s balance sheet creates central bank money or liquidity. Every liability on its balance sheet withdraws liquidity. In order to gauge the overall liquidity provided by a central bank’s non-monetary policy operations, all non-monetary policy related assets and liabilities are netted.

How is the maximum amount of NFA calculated?

Calibration of NFA entitlements takes place at least every three years, though ad hoc calibrations can be conducted at the request of any party to the agreement. For each calibration, the Governing Council sets the necessary monetary policy parameters. The Governing Council decides the Eurosystem’s appropriate liquidity level, sets the minimum reserve ratio and determines the size of the monetary policy outright portfolios to achieve the most effective implementation of its monetary policy. In addition, the Governing Council takes into account developments concerning the amount of banknotes in circulation. The new maximum amount of aggregate Eurosystem NFA is a residual of the aforementioned factors.

How is the maximum amount of Eurosystem NFA allocated to national central banks?

Once the Eurosystem-wide ceiling for NFA is set, it is allocated in line with each national central bank's share in the ECB’s capital, also taking into account each national central bank's historical starting position, to determine the national central banks’ NFA entitlements for the subsequent year. This entitlement then applies until the next calibration, which takes place at the latest after three years.

In the course of the calibration process, if a national central bank does not plan to use its entitlement in its entirety, ANFA provides the option of temporarily reallocating the unused part to other national central banks that want to hold a higher NFA ceiling. The unused part is redistributed by a central mechanism defined in ANFA. The national central banks’ NFA must remain below their NFA ceilings on an annual average basis. 

What is the impact of waivers?

The waivers can influence the distribution of the maximum amount of NFA within the Eurosystem. They do not, however, increase the maximum cap on the total NFA holdings of Eurosystem national central banks.

The waivers define a minimum entitlement of NFA that each national central bank can hold. In other words, each national central bank has the right to hold a certain share of the maximum amount of Eurosystem NFA, based on that national central bank’s share in the ECB’s capital, with the amount corresponding to the waiver being that national central bank’s minimum entitlement (this may be higher than the amount calculated according to its share in the ECB’s capital). Of course, if some national central banks hold NFA corresponding to their waivers that exceed their capital shares, the amount of NFA the remaining national central banks are permitted to hold will be reduced such that the maximum amount of Eurosystem NFA is never exceeded.

There are three types of waivers:

  • The historical waiver (specified in Annex III of ANFA) ensures that the national central banks do not have to reduce their NFA below a level which is linked to their historical starting position.
  • The asset-specific waiver protects certain asset holdings (defined in Annex IV of ANFA) that cannot be sold easily by the national central bank owing to contractual restrictions or other constraints.
  • The dynamic waiver adjusts the historical waiver of small national central banks over time in proportion to the growth or decline of Eurosystem maximum NFA.

Only the largest of the three waivers applies.

What happens if one or several national central banks invest nothing, or less than the maximum amount initially assigned to them? Can they pass the remaining amount on to others?

If some national central banks plan to hold less than their entitlements, while others wish to hold more, then the unused part will be redistributed using a central mechanism defined in ANFA. This is done in the context of the periodic calibration of the NFA ceilings. The redistribution of unused leeway is temporary and will be recalculated during the subsequent calibration. The redistribution has no influence on the aggregate amount of maximum NFA held by all euro area national central banks together, which is determined by the monetary policy decisions of the Governing Council.

Why do some national central banks use their quota and others not?

This depends on institutional preferences. Some jurisdictions have specific legal constraints on the non-monetary policy investments carried out by national central banks; others have legal provisions requiring national central banks to take their shareholders’ interests into account once their monetary policy tasks are fulfilled. Furthermore, some national central banks have large client and/or government deposits on the liability side, which influence their non-monetary policy portfolio holdings.

There is also a historical reason: before the introduction of the euro in 1999, a number of European central banks held rather large foreign reserves in order to manage their exchange rates, in particular vis-à-vis the Deutsche Mark. This situation was comparable to that of EU Member States joining the euro area after 1999, in which national central banks also held fairly large foreign reserves to manage their exchange rates vis-à-vis the euro before joining the Eurosystem. The national central banks’ different starting positions explain the considerable differences in their balance sheet compositions, which in some cases persisted for a number of years after their country joined the euro area.

What happens if a national central bank exceeds its NFA ceiling?

If a national central bank were to consistently exceed its ceiling for NFA, this could affect the implementation of monetary policy. For that reason, the ECB monitors annually whether the national central banks comply with ANFA. If necessary, via Article 14.4 of the Statute of the ESCB and of the ECB, the Governing Council can prohibit, restrict or limit the operations carried out by the national central banks outside of monetary policy if such operations interfere with the objectives and tasks of the ESCB, including Eurosystem monetary policy. So far, there has been no unjustified deviation from the NFA ceilings.

A deviation is justified if, for example, it is caused by international commitments to the IMF or by a national central bank’s provision of emergency liquidity assistance (ELA) to its banking system (ELA is part of the NFA as defined in ANFA). If this happens, the national central bank has to reduce its NFA as soon as possible in order to once again comply with ANFA. It has one year to do so if the breach is due to commitments to the IMF.

What happens if the overall amount of NFA of all national central banks stays below the calculated maximum amount?

It is generally not a problem if NFA stay below the calculated maximum level. This is, in fact, usually the case. NFA have decreased since 2014, while the number of banknotes in circulation continues to grow. This means that the euro area-wide liquidity needs generated by banknotes in circulation are higher than the liquidity-providing effect generated by Eurosystem NFA. The liquidity needs are instead covered using monetary policy tools, either regular Eurosystem refinancing operations or structural operations such as monetary policy outright purchases or structural reverse operations.

What happens if the overall amount of NFA is larger than the calculated maximum?

This has never happened and it is very unlikely to happen. ANFA is a unanimous agreement between the national central banks and the ECB, meaning that all parties have committed to complying with it. In addition, the risk that the overall amount of NFA is too large is further reduced by using conservative assumptions when determining the NFA ceilings. This means that even if NFA were larger than the maximum and, consequently, monetary policy operations were smaller than initially envisaged, the desired structural liquidity position would probably still exist. Monetary policy operations may thus be smaller than desirable for the effective implementation of monetary policy in such a case, but the situation in the short term would not be acute and the ECB would take corrective action. If remedial action is needed, the Governing Council has various tools at its disposal to ensure that monetary policy operations are of a sufficient size. For example, as regards the size of the refinancing operations, the Governing Council may use liquidity-absorbing operations or increase the minimum reserve requirements.

What happens if other factors, such as banknotes, develop differently to what was expected?

The periodic calibration of ANFA is based on conservative assumptions. The NFA ceilings thus contain sufficient buffers to deal with unforeseen developments. For example, when calibrating the ceilings it is assumed that banknotes in circulation will remain at the average level observed during the third quarter of the current year.

Under what circumstances could NFA interfere with monetary policy?

ANFA was adopted to avoid NFA interfering with monetary policy. Should the amount of NFA nevertheless exceed the overall maximum, it could mean that monetary policy operations may become too small to allow for an effective implementation of monetary policy.

As well as the amount of NFA, their composition also matters. For example, if individual monetary policy transactions and non-monetary policy transactions offset each other (e.g. one is a purchase of a security and another is a sale of the same security), this can send conflicting signals about the Eurosystem’s monetary policy intentions or reduce the effectiveness of monetary policy. Another example is central bank transactions in foreign currencies, which can impact exchange rates or be misinterpreted as exchange rate interventions.

To ensure that these events do not interfere with monetary policy, the ECB has adopted measures that complement ANFA, including the ECB Guideline on Domestic Asset and Liability Management Operations by the National Central Banks (recast) (ECB/2019/7), and the ECB decision on a secondary markets public sector asset purchase programme (ECB/2015/10, as amended). While the former, for example, controls the net liquidity effects of national central banks’ operations, the latter limits, among other things, the amount of a specific security eligible for the public sector purchase programme held in all portfolios of the Eurosystem central banks.

How do you ensure that investment operations do not affect the monetary policy stance?

ANFA sets a maximum for the national central banks’ NFA. At the same time, this limits the liquidity effect from non-monetary policy transactions carried out by the national central banks. Second, in their non-monetary policy transactions the national central banks and the ECB act as institutional investors. When national central banks make purchases for non-monetary policy portfolios they follow similar criteria to other institutional investors and consider their decisions separately from monetary policy, as well as following the rules set out in ANFA and other relevant guidelines.

The ECB is regularly informed about the national central banks’ (1) non-monetary policy transactions, some of which do require prior approval by the ECB; (2) their assets and liabilities; and (3) their expected and actual NFA. The ECB can take corrective action if the reported non-monetary policy transactions interfere with the monetary policy stance. Finally, the Governing Council can adopt specific measures that are binding for the national central banks.

Why are national central banks’ non-monetary policy assets and liabilities kept secret?

National central banks’ non-monetary policy assets and liabilities are made public in compliance with national and European rules. In accordance with these rules, the national central banks decide whether to publish information on their non-monetary policy assets and liabilities, including the composition of their non-monetary policy portfolios.

Most national central banks disclose additional details in their annual reports or in other publications and on their websites, where they for example show a breakdown of their assets into government and non-government debt. Just like other investors, national central banks do not disclose information that could allow others to make inferences about their future investment behaviour.

The Eurosystem has no mandate to disclose the composition of national central banks' non-monetary policy assets and liabilities.

What ensures that the non-monetary policy portfolios are not misused for the purpose of prohibited monetary financing?

The ECB is responsible for ensuring that the central banks of the ESCB respect the prohibition of monetary financing, as stated in the Treaty on the Functioning of the European Union, as well as in the Statute of the European System of Central Banks and of the ECB. This is not addressed by ANFA, which is only concerned with the desired structural liquidity position for implementing monetary policy and, as such, defines the size of the NFA. ANFA neither addresses the composition of non-monetary policy assets and liabilities nor the manner in which they are acquired.

To monitor compliance with the prohibition of monetary financing, the ESCB national central banks are required to inform the ECB about their assets, and the ECB ensures the national central banks do not finance governments by buying their debt in the primary market. The ECB also monitors purchases on the secondary market. The results of these checks and assessments are published in the ECB’s annual report.

What happens if these rules on the prohibition of monetary financing are breached?

This is not covered by ANFA but by Articles 123 and 124 of the Treaty on the Functioning of the European Union (i.e. by the highest ranking type of European law). The Governing Council of the ECB determined rules for all national central bank investment operations to ensure that they do not contravene the monetary financing prohibition. Primary market purchases of government debt are forbidden and the national central banks have to report their transactions on the secondary market. The ECB monitors compliance with the monetary financing prohibition and reports on the results of its monitoring in its annual report.


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