Advisory guidelines for preparation of the report on reserve requirement calculation

1. Purpose 

The purpose of these guidelines is to specify the details related to the preparation of the report on reserve requirement calculation for credit institutions and savings and loan associations.

2. Application

The obligation to comply with the reserve requirement applies to all credit institutions and savings and loan associations operating in Estonia, including branches of foreign credit institutions. The reserve requirement framework does not apply to foreign branches of Estonian credit institutions or to credit institutions and savings and loan associations excluded by the European Central Bank from the list of members of the euro area minimum reserve system or exempted by the European Central Bank from the obligation to comply with the reserve requirement.

The list of members of the euro area minimum reserve system has been published on the ECB website at http://www.ecb.europa.eu/stats/money/mfi/general/html/monthly_list-MID.en.html.

3. Reserve requirement calculation basis

The reserve requirement calculation basis, reserve requirement rates and their implementation in the calculation of the reserve requirement have been stipulated in the Regulation (EC) No 1745/2003 of the European Central Bank of 12 September 2003 on the application of minimum reserves (ECB/2003/9) (amended by Regulation (EC) No 2016/1705 (ECB/2016/26)). Pursuant to the regulation, the reserve requirement calculation basis comprises all deposits involved and debt instruments issued by the credit institution or savings and loan association. For the purposes of the above liabilities, the terms and definitions stipulated in Regulation (EC) No 1071/2013 of the European Central Bank of 24 September 2013 concerning the balance sheet of the monetary financial institutions sector (recast) (https://www.ecb.europa.eu/ecb/legal/pdf/02013r1071-20131127-en.pdf) shall apply.

Pursuant to the interpretation of Eesti Pank, the following entries of Appendix 2 ("Report on the balance of resources") and Appendix 9 ("Report on the balance of liabilities represented by securities" of Eesti Pank Governor's Decree No 7 of 29 May 2014 "Establishment of supplementary reports on credit institutions' balance sheet" are included in the reserve requirement calculation basis:

4. Deductions from the reserve requirement calculation basis

The liabilities to the members of the euro area minimum reserve system, European Central Bank and the NCBs of euro area countries, stipulated in clause 3, shall be deducted from the reserve requirement calculation basis.

In order for the reporting credit institution or savings and loan association to be able to make deductions from the issued debt instruments, it must be able to provide evidence of the volume of debt instruments held by institutions whose positions are allowed to be deducted. Fixed rate (15%) standardised deductions shall be applied if the reporting credit institution or savings and loan association is unable to identify the holders of issued debt instruments with a maturity up to two years and money market papers.

Information on standardised deductions and the corresponding rates has been disclosed on the ECB website at http://www.ecb.int/mopo/implement/mr/html/calc.en.html, under "Standardised deductions"

5. Reserve requirement rates and their implementation

The reserve ratios have been stipulated in Article 4 of the Regulation (EC) No 1745/2003 of the European Central Bank of 12 September 2003 on the application of minimum reserves (ECB/2003/9) (amended by Regulation (EC) No 2016/1705 (ECB/2016/26)). The reserve ratios are also published on the ECB website at http://www.ecb.int/mopo/implement/mr/html/calc.en.html>, under "Reserve coefficients".

Pursuant to the above regulation, a reserve ratio of 1% shall apply to liabilities with a contractual term of up to two years or liabilities included in the reserve requirement calculation basis, redeemable at notice up to two years. A reserve ratio of 0% shall apply to all other liabilities included in the reserve base.

6. Calculation of the size of the reserve requirement

The calculation of the reserve requirement shall be governed by Appendix 1 ("Layout of the report on reserve requirement calculation") and Appendix 2 ("Report on reserve requirement calculation") of Eesti Pank Governor's Decree No 22 of 7 December 2010 "Report on reserve requirement calculation".

7. Compliance with the reserve requirement

Under Article 7 of Regulation (EC) No 1745/2003 of the European Central Bank of 12 September 2003 on the application of minimum reserves (ECB/2003/9) (amended by Regulation (EC) No 2016/1705 (ECB/2016/26)), the European Central Bank publishes a calendar of maintenance periods at least three months before the start of each calendar year.

The size of the reserve requirement for the maintenance period is calculated using data from two months (t-2) before the maintenance period. This means that the size of the reserve requirement for the maintenance period beginning in January is calculated from the data for November.

In order to comply with the reserve requirement, the credit institution or savings and loan association needs to open an account in Eesti Pank. The closing balance of the account at the end of the day is used for the reserve accounting, and for payment of interest if the reserve requirement has been complied with, and of penalties if it has not. Compliance with the reserve requirement is calculated as the average of the closing balances of the maintenance period.

The credit institutions and savings and loan associations use the TARGET2 Reserve Management Module for monitoring compliance with the reserve requirement. TARGET2 participants can use the TARGET2 Reserve Management Module in accordance with the TARGET2-Eesti agreement, while savings and loan associations must sign a separate agreement in order to use TARGET2 Reserve Management Module.

Eesti Pank establishes the reserve requirement and adds the reserve requirement to the TARGET2 Reserve Management Module for credit institutions and savings and loan associations at the latest on the working day preceding the commencement date of the maintenance period.