THE SINGLE MONETARY POLICY IN STAGE THREE

Chapter 2 - Eligible Counterparties

2.1 General Eligibility Criteria

Counterparties to ESCB monetary policy operations must fulfil certain eligibility criteria. These criteria are defined with a view to giving a broad range of institutions access to ESCB monetary policy operations, enhancing equal treatment of institutions across the euro area and ensuring that counterparties fulfil certain operational and prudential requirements:

If minimum reserves are applied, only institutions subject to the ESCB's minimum reserves system according to Article 19.1 of the ESCB/ECB Statute are eligible to be counterparties. Institutions which are exempt from their obligations under the ESCB's minimum reserves system (see Section 7.2) are not, as a rule, eligible to be counterparties to ESCB standing facilities and open market operations;
If no minimum reserves are applied, the range of counterparties eligible to access standing facilities and open market operations is restricted to credit institutions established in the euro area. The ECB may, on a non-discriminatory basis, exclude from access to standing facilities and open market operations categories of credit institutions which are not relevant for the purposes of transmitting monetary policy⁸;
Counterparties must be financially sound. They should be subject to at least one form of EU/EEA harmonised supervision by national authorities⁹. However, financially sound institutions subject to non-harmonised national supervision of a comparable standard can also be accepted as counterparties, e.g. branches established in the euro area of institutions that have their head office outside the European Economic Area;
Counterparties must fulfil any operational criteria specified in the relevant contractual or regulatory arrangements applied by the respective national central bank (or the ECB), so as to ensure the efficient conduct of ESCB monetary policy operations.

These general eligibility criteria are uniform throughout the euro area. Institutions fulfilling the general eligibility criteria may:

access the ESCB standing facilities;
participate in ESCB open market operations based on standard tenders.

Institutions may access the ESCB standing facilities and open market operations based on standard tenders only through the national central bank of the Member State in which the institution is established. If an institution has establishments (head office and branches) in more than one Member State, each establishment has access to these operations through the national central bank of the Member State in which it is located, notwithstanding that the tender bids of an institution may only be submitted by one establishment (either the head office or a designated branch) in each Member State.

In accordance with provisions in the contractual or regulatory arrangements applied by the respective national central bank (or the ECB), the ESCB may reject counterparties' access to monetary policy instruments on grounds of prudence or in the event of severe or persistent failure to comply with obligations.

2.2 Selection of Counterparties for Quick Tenders and Bilateral Operations

For outright transactions, no restrictions are placed a priori on the range of counterparties.

For foreign exchange swaps executed for monetary policy purposes, counterparties must be able to conduct large-volume foreign exchange operations efficiently under all market conditions. The range of counterparties to foreign exchange swaps corresponds to the counterparties located in the euro area which are selected for ESCB foreign exchange operations. The criteria and procedures applied for the selection of counterparties for foreign exchange operations are presented in Annex 4.

For other operations based on quick tenders and bilateral procedures (fine-tuning reverse transactions and the collection of fixed-term deposits), each national central bank selects a set of counterparties among the institutions established in its Member State which fulfil the general counterparty eligibility criteria. This selection is based on criteria which are uniform throughout the euro area. In this respect, activity in the money market is the prime selection criterion. Other criteria which might be taken into account are, for example, the efficiency of the trading desk and the bidding potential.

In quick tenders and bilateral operations, the national central banks deal exclusively with the counterparties which are included in their respective set of fine-tuning counterparties. If, for operational reasons, a national central bank cannot deal in each operation with all its fine-tuning counterparties, the selection of counterparties in this Member State will be based on a rotation scheme in order to ensure equitable access.

The Governing Council of the ECB will decide whether, under exceptional circumstances, fine-tuning bilateral operations may be carried out by the ECB itself. If the ECB were to carry out bilateral operations, the selection of counterparties would in such cases be made by the ECB according to a rotation scheme among those counterparties in the euro area which are eligible for quick tenders and bilateral operations in order to ensure equitable access.

5. The ECB might, if it decides to apply reserve requirements, review the range of institutions subject to reserve requirements. Selecting a broader range of institutions than credit institutions would require an amendment of Article 19.1 of the ESCB/ECB Statute. This could be brought about by the simplified amendment procedure specified in Article 41 of the ESCB/ECB Statute.

8. It is not excluded that, irrespective of the application of the ESCB's minimum reserves system, the ECB will decide to accept as counterparties additional institutions if they are relevant for the purposes of transmitting monetary policy.

9. Harmonised supervision of credit institutions is based on the Second Banking Co-ordination Directive (89/646/EEC), OJ L 386 of 30 December 1989, page 1 ff. If a wider range of institutions were to be subject to the ESCB's minimum reserves system (see footnote 5), harmonised supervision of these institutions would need to be based on the Investment Services Directive (../EEC), OJ L 141 of 11 June 1993, page 27 ff. and the UCITS Directive (85/611/EEC), OJ L 375 of 31 December 1985, page 19 ff.

ECB - European Central Bank

5.	The ECB might, if it decides to apply reserve requirements, review the range of institutions subject to reserve requirements. Selecting a broader range of institutions than credit institutions would require an amendment of Article 19.1 of the ESCB/ECB Statute. This could be brought about by the simplified amendment procedure specified in Article 41 of the ESCB/ECB Statute.
8.	It is not excluded that, irrespective of the application of the ESCB's minimum reserves system, the ECB will decide to accept as counterparties additional institutions if they are relevant for the purposes of transmitting monetary policy.
9.	Harmonised supervision of credit institutions is based on the Second Banking Co-ordination Directive (89/646/EEC), OJ L 386 of 30 December 1989, page 1 ff. If a wider range of institutions were to be subject to the ESCB's minimum reserves system (see footnote 5), harmonised supervision of these institutions would need to be based on the Investment Services Directive (../EEC), OJ L 141 of 11 June 1993, page 27 ff. and the UCITS Directive (85/611/EEC), OJ L 375 of 31 December 1985, page 19 ff.