Instructions of Banco de Portugal
Instruction No. 24/2009

SUBJECT: Intraday Credit and Contingency Liquidity Facility

Under the provisions of Article 24 of its Organic Law, and in the exercise of the competence conferred upon it by Article 14 of that Law, Banco de Portugal regulates the granting of Intraday Credit and the Contingency Liquidity Facility in the following terms:

I – GENERAL PROVISIONS

1. Banco de Portugal (BP) provides funds maturing on the same day to the Participating Institutions in the Trans-European Automated Real-time Gross settlement Express Transfer system, abbreviated as TARGET2-PT, for the purpose of facilitating the execution of settlement operations, through the granting of Intraday Credit.

2. In the event of unavailability of the Single Shared Platform – SSP of TARGET2, BP provides funds for the provisioning of the accounts of the Participating Institutions in the Contingency Module (CM/Contingency Module) of TARGET2 to meet critical payments, through the use of the Contingency Liquidity Facility (CLF).

3. Access to Intraday Credit and to the CLF is reserved exclusively for the following entities established in Portugal, direct participants in TARGET2-PT:

a) credit institutions established in the EEA that are eligible counterparties for Eurosystem monetary policy operations and that have access to the marginal lending facility, including the case of credit institutions acting through a branch established in the EEA and the case of branches established in the EEA of credit institutions established outside it;

b) credit institutions established in the EEA that are not eligible counterparties for Eurosystem monetary policy operations and/or that do not have access to the marginal lending facility, including the case of credit institutions acting through a branch established in the EEA and the case of branches established in the EEA of credit institutions established outside it;

c) treasury departments of central or regional governments of Member States active in the money markets, and public sector entities of Member States authorised to maintain accounts for their customers;

d) investment firms established in the EEA, provided that they have entered into an agreement with a counterparty of the Eurosystem monetary policy to guarantee that any residual debit balance of theirs at the end of the day is covered; and

e) other entities not covered by paragraphs a) and b) that provide clearing or settlement services, that are established in the EEA and that are subject to supervision by a competent authority, provided that the agreements for the granting of intraday credit to such entities have been previously submitted to the ECB Council and approved by it.

3.1. In relation to the entities mentioned in paragraphs b) to e) of No. 3, intraday credit may not be converted into overnight credit.

4. For the purposes of this Instruction, "credit institution" means:

a) either a credit institution within the meaning of Article 2 of Decree-Law No. 298/92, of 31 December, in its current wording, which establishes the General Regime of Credit Institutions and Financial Companies, which is subject to supervision by a competent authority;

b) or a credit institution within the meaning of paragraph 2 of Article 101 of the Treaty establishing the European Community, which is subject to a control of a standard comparable to the supervision exercised by a competent authority.

5. The ECB Council may, on a proposal from BP, exempt the treasury departments and public sector entities referred to in paragraph c) of No. 3 from the requirement to provide adequate collateral before they can obtain intraday credit.

II – OPENING OF INTRADAY CREDIT WITH COLLATERAL

6. The amount of Intraday Credit, which is not subject to any maximum limit, is contracted between BP and each of the institutions eligible to resort to this type of credit operation, based on the average of the maximum debit balances of the last twelve months of the Participating Institution, in all peripheral systems linked to TARGET2-PT. In the case of new participants, the minimum amount of Intraday Credit to be contracted shall be agreed, on a case-by-case basis, between BP and the Participating Institution.

7. The conditions for the opening of Intraday Credit and the constitution of the respective collateral are established in the "Master Agreement for the Opening of Intraday Credit with Collateral of Financial Instruments, of Present and Future Credit Balances in the account of the Participating Institution and of Credit Rights in the Form of Bank Loans (Master Agreement), annexed to this Instruction and forming an integral part thereof.

8. The operations of opening Intraday Credit with collateral carried out under a multilateral liquidity aggregation agreement shall be secured by a financial pledge over the present and future credit balances available in the account of the Participating Institution, under the terms provided for in the TARGET2-PT Regulation, as well as under the terms of the Master Agreement.

9. The amount of the outstanding credit corresponds, at each moment, to the amount necessary to cancel, during the operating period of TARGET2-PT, the debit balance of the account opened in the said settlement system in the name of the Participating Institution.

10. The amount of the contracted credit is secured by assets eligible for monetary policy operations, in accordance with the conditions established in Chapter VI and Annex 2 of Instruction No. 1/99, which regulates the Market of Intervention Operations (MOI), as well as, in the case of a multilateral liquidity aggregation agreement, by the present and future credit balances available in the account of the Participating Institution.

11. The risk control measures and the rules for the valuation of assets and their cross-border use applicable to Intraday Credit shall be identical to those established for monetary policy operations in Chapter VI of the Instruction governing the MOI.

12. Where the available value of the collateral, valued in accordance with paragraph 10, is lower than the amount of the contracted credit, the latter shall be automatically reduced by the amount corresponding to the existing shortfall and for as long as it persists.

13. The amount of the credit used shall be repaid by the Participating Institution on the same day, by the closing time of the interbank sub-session established in the TARGET2-PT Regulation, without any interest being payable.

14. In the event of non-repayment of the funds by the fixed time, the entities mentioned in subparagraph a) of paragraph 3 may obtain funds on an overnight basis under the standing marginal lending facility, under the conditions set out in Chapters III and V of the Instruction governing the MOI

15. The assets provided as collateral for Intraday Credit may be used by the Participating Institutions in the MOI to obtain funds on an overnight basis under the standing marginal lending facility, under the conditions set out in Chapter VI of the Instruction governing that market.

III – DEFAULT

16. A default situation shall be deemed to exist in any situation, imminent or actual, the occurrence of which may threaten the fulfilment by a Participating Institution of its obligations arising from the TARGET2-PT Regulation or from any other rules applicable to the relationship between the Participating Institution and the BP or any other Central Bank in the context of the granting of Intraday Credit, such as, in particular:

a) the Participating Institution ceases to meet the access criteria and/or the technical requirements laid down in the Harmonised Conditions for Participation in TARGET2, annexed to the TARGET2-PT Regulation;

b) insolvency proceedings are opened against the Participating Institution;

c) a request is submitted in relation to the proceedings referred to in subparagraph b);

d) the Participating Institution declares in writing its inability to pay all or part of its debts or to meet its obligations related to Intraday Credit;

e) the conclusion of an agreement or composition between the Participating Institution and its creditors;

f) the Participating Institution is insolvent or unable to settle its debts, or is presumed to be so by the relevant participating National Central Bank;

g) the credit balance of the account of the Participating Institution opened in the Payment Module (PM account) or of the PM account indicated by the Participating Institution for the settlement of the clearing balances owed by its participation in peripheral systems linked to TARGET2-PT, or all or a substantial part of the assets of the Participating Institution is subject to an order of freezing, seizure, attachment or any other procedure of public or private law intended to protect the public interest or the rights of the creditors of the Participating Institution;

h) the participation of the Participating Institution in another component system of TARGET2 and/or in a Peripheral System (PS) has been suspended or cancelled;

i) any representation or other important pre-contractual statement expressed or implied made by the Participating Institution under the applicable legislation proves to be false or incorrect; or

j) assignment of all or a substantial part of the assets of the Participating Institution.

17. In the event of default, the BP may apply one or more of the measures set out in Chapter VII.4 of the Instruction governing the MOI.

18. Non-repayment of Intraday Credit at the end of the day, for any reason, shall render the Participating Institutions referred to in subparagraphs b), d) or e) of paragraph 3 liable to the following pecuniary sanctions:

a) If, for the first time within a period of twelve months, the Participating Institution in question has a debit balance in its account at the end of the day, it shall incur penalty interest calculated at a rate of five percentage points above the interest rate of the standing marginal lending facility on the amount owed;

b) If, at least for the second time within the same period of twelve months, the Participating Institution in question has a debit balance in its account at the end of the day, the penalty interest mentioned in subparagraph a) shall be increased by 2.5 percentage points for each time following the first time on which a debit position occurs within the same twelve-month period.

19. The BP may request the ECB Governing Council to waive or reduce the pecuniary sanctions imposed under this Chapter, if the debit balance of the Participating Institution in question at the end of the day is attributable to force majeure and/or a malfunction of TARGET2-PT, as defined in Annex I to the TARGET2-PT Regulation.

IV – SUSPENSION OR REVOCATION OF INTRADAY CREDIT

20. The BP may suspend or revoke the access of a Eurosystem monetary policy counterparty to Intraday Credit if, under the previous Chapter, a default situation occurs, as well as in the following cases:

a) the account of the Participating Institution with TARGET2-PT is suspended or closed;

b) the Participating Institution ceases to meet the conditions for the granting of Intraday Credit set out in this Instruction.

21. The suspension or revocation shall only take effect after being approved by the ECB.

22. In urgent situations, the BP may suspend access to Intraday Credit with immediate effect, and must notify the ECB of this fact, in writing, immediately. The ECB may annul the action of the BP. If the ECB does not communicate, within ten business days from receipt of the notification, the communication of such annulment, it shall be presumed that the ECB has approved the action of the BP.

V - CONTINGENCY LIQUIDITY FACILITY

23. The transfer of funds under the Contingency Liquidity Facility is reserved for direct participants in TARGET2-PT that are beneficiaries of collateralized credit opening and shall be carried out in the form of a reversible operation under the terms set out in the "Master Agreement for the Opening of Credit with Collateral of Financial Instruments and Credit Rights in the Form of Bank Loans for Monetary Policy Operations", annexed to the Instruction governing the MOI.

24. Assets eligible for monetary policy operations in accordance with the conditions established in Chapter VI and Annex 2 of the Instruction governing the MOI may be used to obtain funds under the CLF.

25. Risk control measures and rules for the valuation of assets and their cross-border use identical to those established for monetary policy operations in Chapter VI of the Instruction governing the MOI shall apply to these operations.

26. Funds are transferred at the request of the Participating Institution, in the amount necessary for the execution of critical payments, through the provisioning of the Participating Institution's account in the Contingency Module, in cases of prolonged failure of the Single Shared Platform of TARGET2.

27. The CLF may be used up to the limit of the available amount of assets to collateralize monetary policy operations.

28. The CLF is repaid immediately after the restoration of normal operation of the Single Shared Platform of TARGET2, with no interest payable.

29. The operations are carried out through SITEME.

VI - FINAL AND TRANSITIONAL PROVISIONS

30. The BP may at any time amend this Instruction, with the new provisions applying only to operations carried out after the date of entry into force of the new Instruction.

31. Any clarifications regarding the Intraday Credit Opening with Collateral and the Contingency Liquidity Facility may be obtained from the Payment Systems Department and the Markets and Reserve Management Department, respectively.