Public funding of failing banks in the European Union (LBF vol. 19) 2020/5.2.2.1:5.2.2.1 Standard and extraordinary monetary policy operations

Public funding of failing banks in the European Union (LBF vol. 19) 2020/5.2.2.1

5.2.2.1 Standard and extraordinary monetary policy operations

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Provision of ELA amounts to a crisis prevention tool that falls within the remit of national central banks as part of their mandate to ensure financial stability.1 National central banks can also provide liquidity assistance, other than ELA, through standard and extraordinary monetary policy operations. The resolution framework, for example, also mentions central bank liquidity assistance provided under non-standard collateralisation, tenor and interest rate terms.2 This is a form of an extraordinary monetary policy operation.3

Article 10(3)(c) BRRD provides that the resolution plan may not assume any central bank liquidity assistance provided under non-standard collateralisation, tenor and interest rate terms to the bank. This may also not be assumed in the resolvability assessment (Article 15(1)(c) BRRD). Article 36(5) BRRD provides that Valuation 1 and 2 may not assume any central bank liquidity assistance provided under non-standard collateralisation, tenor and interest rate terms to the bank.

Standard monetary policy operations include the monetary policy tools of open market operations and standing facilities, including the marginal lending facility – in order to obtain overnight liquidity from a national central bank, against the presentation of sufficient eligible assets – and the deposit facility – in order to make overnight deposits with a national central bank.

Only banks that qualify as eligible counterparties within the meaning of Part Three of the ECB Guideline on the implementation of the Eurosystem monetary policy framework can have access to the Eurosystem monetary policy operations. The eligibility criteria include the criterion that the bank is financially sound4 and subject to supervision by a competent authority.5 Standard and extraordinary monetary policy operations do not qualify as State aid or EPFS.6 They also do not qualify as ELA.

Both the recovery and resolution plan should, where applicable, include an analysis of how and when a bank may apply, in the conditions addressed by the plan, for the use of central bank facilities, and identify those assets which would be expected to qualify as collateral.7

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