The single monetary policy in Stage Three: General documentation on ESCB monetary policy instruments and procedures
The European Central Bank (ECB) will today publish a Report entitled "The single monetary policy in Stage Three: General documentation on ESCB monetary policy instruments and procedures". The Report contains a detailed description of the monetary policy instruments and procedures to be applied by the ESCB in Stage Three of Economic and Monetary Union. Hence it provides credit institutions with the information they will need in order to prepare for participation in ESCB monetary policy operations as from 1 January 1999. The Report expands upon and updates the material contained in an earlier version published by the European Monetary Institute (EMI) on 23 September 1997.
The Report first sets out the criteria to be fulfilled by credit institutions in order to be eligible as counterparties to ESCB monetary policy operations. It then presents the features of the different types of open market operations which might be conducted by the ESCB (the main refinancing operations, the longer-term refinancing operations, fine-tuning operations and structural operations) and the ESCB's two standing facilities (the marginal lending facility and the deposit facility). The Report contains a detailed description of the procedures related to the various types of operations. Furthermore, the Report specifies the eligibility criteria and the risk control measures to be applied to assets underlying the ESCB's liquidity-providing operations. Moreover, the Report describes the features of the ESCB's minimum reserve system. Finally, the Report presents specific provisions to be applied for the ESCB's monetary policy instruments and procedures in the transition to Stage Three.
With reference to the EMI publication of September 1997, the present Report specifies additional details, particularly in the following areas:
- the eligibility criteria and risk control measures to be applied to eligible assets underlying ESCB monetary policy operations have been elaborated, including a specification of the levels of initial margins and valuation haircuts. The lists of eligible assets for ESCB monetary policy operations will be made public by the ECB via the Internet. It is expected that these lists will be published for the first time in October 1998;
- the time schedule for the procedures to be applied to transactions involving the cross-border use of eligible assets through the correspondent central banking model (CCBM) has been specified. The ECB intends to publish a more detailed description of the procedures for the cross-border use of eligible assets in November 1998;
- further to the decision taken by the Governing Council of the ECB on 7 July 1998 to implement minimum reserves as from the start of Stage Three, the precise features of the ESCB's minimum reserve system, in particular the definition of the reserve base and the formula for the calculation of the remuneration of holdings of required reserves, are included in the Report. In this respect, it should be noted that the Governing Council of the ECB decided at its meeting on 11 September 1998 to extend the set of liabilities to which a zero reserve ratio will be applied to include deposits redeemable at notice over two years. The ESCB's minimum reserve system applies to credit institutions established in the euro area. The list of institutions subject to the ESCB's minimum reserve system will be made public via the Internet. It is expected that this list will be published for the first time in October 1998;
- the reporting framework for the money and banking statistics of the European Central Bank is presented in Annex 4 of the Report. The statistical reporting framework will be used for the calculation of the reserve base of credit institutions. In this respect, some changes have been incorporated in the statistical reporting framework with a view to making the reporting requirements consistent with the final specification of the reserve base;
- the tender operations calendar for 1999, which specifies the dates for the ESCB's main refinancing operations and longer-term refinancing operations, is presented in Annex 5 of the Report;
- the list of wire services to be used by the ESCB in its communication of monetary policy operations to the public is contained in Annex 6 of the Report;
- the list of securities settlement systems which fulfil the ECB's minimum standards, and the conditions for their use by the ESCB, are listed in Annex 7 of the Report.
It should be noted that the Report itself does not confer rights on counterparties. The legal relationship between the ESCB and its counterparties in open market operations and transactions under the standing facilities will be established in the form of appropriate contractual or regulatory arrangements applied by the ECB and the national central banks. In the preparation of these contractual and regulatory arrangements, the ESCB is aiming to ensure uniform financial conditions for counterparties across the euro area, taking due account of the existing differences in legal environment between Member States. The legal documentation will be presented to the counterparties by the ECB and the national central banks before the start of Stage Three.
The legal basis for the ESCB's minimum reserve system will be laid down in a Council Regulation (EC). Likewise, the powers of the ECB to impose sanctions and its right to collect statistical information will be governed by Council Regulations (EC). These three Council Regulations (EC) have yet to be adopted by the EU Council. The provisions contained in the Report are thus subject to the final wording of the Council Regulations (EC). The legal framework for the ESCB's minimum reserve system and for the statistical reporting framework will be completed in ECB Regulations to be enacted following the adoption of the Council Regulations (EC).
The Report will be distributed by the EU national central banks to interested parties in their respective countries. Copies will also be available from the ECB, at the following address:
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