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’s monetary policy for European Union (EU) Member States 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 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 summary).
The Eurosystem open market operations are executed either through tender procedures* or through bilateral procedures, where the NCBs, or, if appropriate, the European Central Bank (ECB), deal directly with one or more counterparties*, or through stock exchanges or market agents, without using tender procedures.

Eligible counterparties

Counterparties to the Eurosystem’s monetary policy operations* 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 summary) and Regulation (EU) No 575/2013 on prudential requirements for credit institutions (see 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. The eligibility of assets is assessed by the NCBs according to the criteria specified in a single framework common to all Eurosystem credit operations.

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.

FROM WHEN DOES THE GUIDELINE APPLY?

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

BACKGROUND

According to Article 127(1) of the Treaty on the Functioning of the European Union, the objective of the European System of Central Banks (ESCB) is to maintain price stability.

Article 127(2) of the treaty states that the basic tasks of the ESCB are to:

define and implement the monetary policy of the EU;
conduct foreign-exchange operations;
hold and manage Member States’ 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 NCBs may conduct open market and credit operations;
the ECB may require credit institutions established in Member States to hold minimum reserves on accounts with the ECB and NCBs in pursuance of monetary policy objectives.

KEY TERMS

Tender procedure. A procedure whereby the Eurosystem provides liquidity to, or withdraws liquidity from, the market whereby the NCB enters into transactions by accepting bids submitted by counterparties after a public announcement.

Counterparty. An institution that meets the Eurosystem’s eligibility criteria to access its monetary policy operations.

Monetary policy operations. Open-market operations and standing facilities.

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.