Agreement On Emergency Liquidity Assistance

Vítor Constâncio then commented on the presentation which highlighted the application and penetration of the agreement on the basis of the experience gained so far during the euro crisis. In the ensuing discussion, the two speakers highlighted lessons learned from previous episodes and possible avenues for the future, in particular for possible future revisions of the existing ELA mechanism. The objective of ELA is to provide money to the central bank to solvent financial institutions facing temporary liquidity problems outside the normal monetary policy operations of the Eurosystem. The draft law expands the range of institutions to which the Bank of Lithuania may grant loans secured by adequate guarantees, in accordance with the conditions set by the Bank of Lithuania, to financial institutions and insurance and reinsurance undertakings. The ECB welcomes the fact that the draft law confirms that, without prejudice to the requirements arising from the participation of the Bank of Lithuania in the ESCB, emergency liquidity assistance should be provided. Under the draft law, the ECB takes note of the possibility for the Bank of Lithuania to provide emergency liquidity assistance to non-bank financial institutions in Lithuania that have liquidity problems. This inclusion of financial institutions in the list of potential beneficiaries of emergency liquidity assistance is in line with the Eurosystem Emergency Liquidity Convention, which explicitly refers to the possibility of a national central bank providing emergency liquidity assistance to a financial institution or group of financial institutions with liquidity problems. The ECB has published an opinion on the provision of emergency cash assistance by the Bank of Lithuania. The opinion was issued following a request for an opinion from the Bank of Lithuania on a draft law. The aim of the draft law is to enable the Bank of Lithuania to extend emergency cash assistance (ELA) to a wider range of financial institutions facing temporary liquidity problems, beyond pure credit institutions. The flexibility of the provision of emergency liquidity assistance by the Bank of Lithuania (introduced in the draft law) is of particular importance in the context of the persistence of the COVID-19 pandemic. These operations allow the Bank of Italy to act at its discretion as lender of last resort and to grant temporary loans against adequate guarantees.

The special financing provided by the Bank of Italy may take the form of a liquidity injection or a loan of guaranteed securities. Emergency Liquidity Assistance (ELA) is a form of exceptional financing provided to solvent financial institutions (usually banks) facing temporary liquidity needs. In his presentation, Professor Gortsos presented the legal basis of ELA in the euro area on the basis of his book in preparation European Central Banking Law - The Role of the European Central Bank and National Central Banks under European Law (Palgrave Macmillan). Under a traditional approach, often referred to as "constructive ambiguity", the conditions under which central banks can exercise their power to act as lenders of last instance are not explicitly defined in laws or regulations. The same is true in the context of the euro area, where ELA is not provided for in the EU Treaties: the corresponding procedural arrangements are set out in the "2017 ECB Agreement on Emergency Liquidity Support", which sets out the specific technical specifications of the procedures for making ELA available. . . .

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