The Eurosystem operations frameworks and liquidity management technique in normal times

1Delphine Guillemet Central banking, liquidity risk and financial stability

Agenda

Introduction

• Presentation of the Eurosystem

• Definition of monetary policy implementation

Scope of action

• Eurosystem’s minimum reserve system

• Eligible counterparties

Tools of the monetary policy implementation

• Open Market Operations

• Standing facilities

Collateral to the monetary operations

Balance sheet2

Presentation of the Eurosystem

The central banking system in the Euro area, comprising:

The European Central Bank (ECB), The national central banks of the

EU member states whose currency is Euro.

The primary objective of the Eurosystem is to maintain price stability, as defined in Article 105 of the Treaty.

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Monetary policy implementation

Monetary policy implementation consists in: Establishing an operationnal framework to control the selected operationnal

target; Using on a day-by-day basis the available instruments to influence the scarcity

of the Central Bank money.

Main tools of the monetary policy implementation for the Eurosystem:

Reserve requirements, Open Market Operations, Standing Facilities.

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Eurosystem’s minimum reserve system

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Institutions fulfilling the general eligibility criteria may:

• access the Eurosystem’s standing facilities;

• participate in Eurosystem open market operations that are based on standard tenders.

These general eligibility criteria are uniform throughout the euro area.

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Eligible counterparties

Open Market Operations

• Initiated by the ECB, which also decides on the instrument to be used and on the terms and conditions for its execution.

• Five types of instruments are available to the Eurosystem for the conduct of open market operations:

• Reverse transaction,

• Outright transactions,

• Issuance of debt certificates,

• Foreign exchange swaps,

• Collection of fixed-term deposits.

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Open Market Operations’ procedures

Eurosystem open market operations are normally executed in the form of tenders.

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Standing facilities

Marginal lending facility:

to obtain overnight liquidity from the national central banks against eligible assets.

Deposit facility:

to make overnight deposits with the national central banks.

• providing and absorbing overnight liquidity

• available to eligible counterparties on their own initiative

• no credit limits or other restrictions on counterparties’ access to the facility

• a ceiling or a floor for the overnight market interest rate

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Standing facilities Features

Key ECB interest rates and EONIA since 1999

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Eurosystem monetary policy operations

Source: ECB (2008), The implementation of monetary politicy in the euro area.11

Eligible assets for Eurosystem monetary policy operations

• Article 18.1 of the Statute of the ESCB, all Eurosystem credit operations have to be based on adequate collateral.

• The “Single List” entered into effect on 1 January 2007, is the single framework defining eligible collateral common to all Eurosystem credit operations.

• It comprises two distinct asset classes:

• marketable assets,

• non-marketable assets.

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Criteria of the “Single List”

13Source: ECB (2008), The implementation of monetary politicy in the euro area.

Central bank balance sheet structure

14Source: ECB (2011), The monetary policy of the ECB.

Consolidated balance sheet of the Eurosystem as at 31 December 2007

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Thank you for your attention.

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