ECB published an opinion on the provision of emergency liquidity assistance by Bank of Lithuania. The opinion was issued in response to a request from the Bank of Lithuania for an opinion on a draft law. The purpose of the draft law is to enable Bank of Lithuania to extend emergency liquidity assistance (ELA) beyond only credit institutions to a broader range of financial institutions experiencing temporary liquidity problems. The flexibility of the provision of emergency liquidity assistance by Bank of Lithuania (introduced in the draft law) is of particular relevance in context of the ongoing COVID-19 pandemic.
The draft law expands the range of institutions to which Bank of Lithuania may grant loans secured by adequate collateral, in accordance with the terms and conditions established by Bank of Lithuania, to include financial institutions and insurance and reinsurance undertakings. ECB welcomes that the draft law confirms that emergency liquidity assistance should be provided without prejudice to the requirements derived from Bank of Lithuania’s participation in the ESCB. ECB notes the possibility under the draft law for Bank of Lithuania to provide emergency liquidity assistance to non-bank financial institutions in Lithuania experiencing liquidity problems. This inclusion of financial institutions in the list of potential emergency liquidity assistance recipients is consistent with the Eurosystem Agreement on emergency liquidity, which explicitly refers to the possible provision of emergency liquidity assistance by a national central bank to a financial institution or a group of financial institutions facing liquidity problems.
In view of compliance with the monetary financing prohibition under Article 123 of the Treaty, it is reiterated that emergency liquidity assistance may only be extended to illiquid but solvent credit institutions or financial institutions. With regard to financial independence, ECB recalls that a national central bank within the ESCB is required to have sufficient financial resources not only to perform its ESCB-related tasks but also its national tasks, including the provision of emergency liquidity assistance. Member states may not put their national central banks in a position where they have insufficient financial resources and inadequate net equity to carry out their ESCB or Eurosystem-related tasks, as applicable. Losses incurred by an national central bank in the exercise of its national tasks could negatively impact the exercise of ESCB-related tasks.
Related Link: ECB Opinion (PDF)
Keywords: Europe, Lithuania, Banking, Insurance, Securities, COVID-19, Emergency Liquidity Assistance, Bank of Lithuania, ESCB, ECB
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