Circular Letter C2.09-0600: EIB Impact on Reserve Requirements and Statistical Reporting

2, boulevard Royal L-2983 Luxembourg Fax (+352) 4774-4920 E-mail: reporting.banques@bcl.lu Ref.: C2.09-0600 Luxembourg, July 14, 2009 Circular Letter To all credit institutions Subject: Circular Letter concerning the EIB: impact on reserve requirements and statistical reporting

Madam, Sir,

During the meeting of the Governing Council of the European Central Bank on May 8, 2009, in Frankfurt, it was decided that the European Investment Bank (EIB) will become an eligible counterparty in the Eurosystem's monetary policy operations effective July 8, 2009. Thus, from this date, the EIB will comply with all eligibility criteria and will deposit reserve requirements with the Banque Centrale du Luxembourg (BCL).

The objective of this circular letter is to describe the impact of this decision on the preparation of monthly and quarterly statistical reports as well as on the reserve requirement.

1. Impact on reserve requirements

Since exposures to the European Central Bank (ECB), national central banks (NCBs) members of the Eurosystem, and credit institutions (CIs) subject to the Eurosystem's reserve requirement system are excluded from the reserve base, the volume of exposures included in the reserve base for exposures to the EIB, which will be subject to the Eurosystem's reserve requirement system starting from the maintenance period beginning in July 2009, must be reduced.

2. Impact on BCL statistical data collection

While the reporting of the EIB as a credit institution resident in the euro area for the purpose of calculating the reserve base and reserve requirement seems obvious, its treatment at the level of euro area statistics is less so. Indeed, in accordance with applicable statistical standards, supranational institutions are to be reported as residents of the "Rest of the World" with the sector code "Public Administrations".

3. Statistical reporting to the ECB

During its meeting of June 24 and 25, 2009, the ECB Statistical Committee discussed a two-step approach that leaves a certain degree of autonomy to national central banks for implementation at the national level.

1. Regarding the transmission of data to the ECB, national central banks are called upon to provide statistical series to the ECB by reporting the EIB as a resident of the "Rest of the World" in the "Public Administrations" sector.
   This classification is consistent with current practice and international statistical standards which require such classification for supranational institutions.

2. Regarding statistical data collection from monetary financial institutions (credit institutions and monetary money market funds), national central banks may opt for one of the following two solutions:
   2.1 maintain the current classification of the EIB as a counterparty resident of the "Rest of the World" (country code "X4") in the "Public Administrations" sector (sector code "30000")

2.2 modify the current classification of the EIB to report it as a resident of the euro area ("Other EMU 1") in the "MFI: credit institutions" sector (sector code "11000")

This approach was endorsed by written procedure on July 9, 2009.

4. BCL Statistical Reporting

Since the data collected based on monthly statistical reports also serve to calculate the reserve base and to compile statistical series such as national accounts and the balance of payments, the classification of the EIB poses a problem. Indeed, it is not possible to report it simultaneously as a resident counterparty of the euro area and as a resident counterparty of the rest of the world.

Thus, theoretically, two solutions are available to address this issue:

1. Maintain the current classification of the EIB:
   The advantage of this solution is the stability of statistical reporting; indeed, it implies no change compared to current practice.
   The disadvantage lies in the fact that it will be necessary to collect additional information from credit institutions that have exposures to the EIB in lines 2-021, 2-022, 2-023, and 2-024 of the S 1.1 report. Indeed, this information is necessary to adjust the amount of the reserve base and the reserve requirement.

2. Modify the current classification of the EIB:
   The advantage of this solution is the ease of calculating the reserve base and the reserve requirement.
   The disadvantage lies in the fact that it will be necessary to collect additional information from all monetary financial institutions (credit institutions and monetary money market funds) that report transactions with the EIB both on the asset and liability sides. Indeed, this information is indispensable to proceed with the adjustment of assets and liabilities before transmitting data to the

1 Other EMU corresponds to Other Member States of the Monetary Union

ECB as well as for the compilation of the balance of payments and national accounts.

In this context, it is important to note that an ad-hoc census conducted in June 2009 allowed us to establish that a limited number of banks are concerned by the adjustment of the reserve base and consequently the net reserve requirement amount, and that the agreement between the ECB and the EIB is a temporary agreement with an initial duration limited to 3 years. Thus, we have opted to maintain the status quo regarding the statistical classification of the European Investment Bank in the statistical reporting of monetary financial institutions.

Maintaining the status quo constitutes the simplest and most efficient solution insofar as a limited number of institutions that have received deposits from the EIB must provide additional information, and it avoids adjustments to reporting software. Moreover, since a modification of the classification would have to be made for May 2009 reports, such a solution would imply an ex-post adjustment of reports already submitted.

Institutions that report deposits received from the EIB may opt to adjust their base and consequently their net reserve requirement by providing the form in the annex to this letter to the BCL.

Thus, credit institutions must report positions regarding the European Investment Bank as follows:

1 Report S 2.5 "Quarterly Statistical Balance Sheet of Credit Institutions"

In the S 2.5 report from June 2009 to March 2010, the EIB is to be reported with country code "XD" and sector code "30000" in accordance with currently in force instructions.

However, for the modified S 2.5 statistical report, which will enter into force in June 2010, the EIB will be reported with a new country code "XE", reserved exclusively for the EIB. From this date, the EIB will be reported with the new sector code for supranational institutions, namely sector code "39000".

2 Other statistical reports

Positions regarding the EIB are to be reported with country code "X4" and sector code "30000" in accordance with currently in force instructions.

However, for the modified S 1.1 statistical report, which will enter into force in June 2010, the BCL has added a "of which" type line under lines 2-021, 2-022, 2-023, and 2-024 to allow for the identification of deposits received from the EIB for the purpose of automating the calculation of the reserve base and reserve requirement. From this date, deposits received from the EIB will be reported with country code "XE" and the new sector code for supranational institutions, namely sector code "39000".

For the period from May 2009 up to and including May 2010, credit institutions that have received deposits from the EIB may submit, together with the S 1.1 statistical report "Monthly Statistical Balance Sheet of Credit Institutions", information on these liabilities based on the MS Excel form included in the annex to this letter. In this case, the reserve requirement amount reported based on the S 1.1 statistical report "Monthly Statistical Balance Sheet of Credit Institutions" will be amended taking into account the information provided based on the aforementioned annex.

Finally, it is important to mention that for the maintenance period starting July 8, 2009, the form is to be prepared based on end-May 2009 data and provided as soon as possible and no later than Friday, July 17, 2009.

Please accept, Ladies and Gentlemen, the assurance of our perfect consideration.

BANQUE CENTRALE DU LUXEMBOURG
Volkert BEHR Roland NOCKELS
Head of Section
Banking and Monetary Statistics Head of Department Statistics

Annex: 1