ECB Opinion on Liquidity Assistance by Bank of Lithuania Amid COVID-19
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
Featured Experts
Victor Calanog, Ph.D.
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Previous Article
CBB Introduces Regulatory Measures to Address Impact of COVID CrisisNext Article
IAIS Publishes Newsletter for March 2020Related Articles
PRA Finalizes Supervisory Approach for Non-Systemic Banks in UK
PRA published the policy statement PS8/21, which contains the final supervisory statement SS3/21 on the PRA approach to supervision of the new and growing non-systemic banks in UK.
EBA Finalizes Standards on Methods of Prudential Consolidation
EBA published a report that sets out the final draft regulatory technical standards specifying the conditions according to which consolidation shall be carried out in line with Article 18 of the Capital Requirements Regulation (CRR).
EBA Updates List of Other Systemically Important Institutions in EU
EBA updated the list of other systemically important institutions (O-SIIs) in EU.
BCBS Report Concludes Basel Risk Categories Can Capture Climate Risks
BCBS published two reports that discuss transmission channels of climate-related risks to the banking system and the measurement methodologies of climate-related financial risks.
UK Authorities Welcome FSB Review of their Remuneration Regime
UK Authorities (FCA and PRA) welcomed the findings of FSB peer review on the implementation of financial sector remuneration reforms in the UK.
PRA and FCA Letter on Addressing Risks from Use of Deposit Aggregators
PRA and FCA jointly issued a letter that highlights risks associated with the increasing volumes of deposits that are placed with banks and building societies via deposit aggregators and how to mitigate these risks.
MFSA to Amend Banking Act and Rules in Coming Months to Transpose CRD5
MFSA announced that amendments to the Banking Act, Subsidiary Legislation, and Banking Rules will be issued in the coming months, to transpose the Capital Requirements Directive (CRD5) into the national regulatory framework.
EC Delegated Regulation on Specialized Lending Exposures Under CRR
EC finalized the Delegated Regulation 2021/598 that supplements the Capital Requirements Regulation (CRR or 575/2013) and lays out the regulatory technical standards for assigning risk-weights to specialized lending exposures.
OSFI Proposes to Enhance Assurance Expectations for Basel Returns
OSFI launched a consultation to explore ways to enhance the OSFI assurance over capital, leverage, and liquidity returns for banks and insurers, given the increasing complexity arising from the evolving regulatory reporting framework due to IFRS 17 (Insurance Contracts) standard and Basel III reforms.
ECB Issues Results of Benchmarking Analysis of Recovery Plans of Banks
ECB published results of the benchmarking analysis of the recovery plan cycle for 2019.
