Advisory guidelines for preparation of the report on reserve requirement calculation
1. Goal
The purpose of this guide is to clarify the details of how to compile reports on the calculation of the reserve requirement for credit institutions and savings and loan associations.
2. Application
The obligation to meet the reserve requirement extends to all credit institutions operating in Estonia, including branches of foreign credit institutions, and savings and loan associations authorised to operate as financial institutions by the Financial Intelligence Unit. The reserve requirement does not extend to foreign branches of Estonian credit institutions or to credit institutions and savings and loan associations that the European Central Bank has excluded from the euro area minimum reserve system or exempted from the minimum reserve requirement.
The list of members of the minimum reserve system of the countries of the euro area is published on the website of the European Central Bank.
3. Basis for calculating the minimum reserve requirement
The basis for calculating the reserve requirement, the reserve requirement rates, and the application of them to the calculation of the reserve requirement is Regulation (EU) 2021/378 of the European Central Bank of 22 January 2021 on the application of minimum reserve requirements (recast) (ECB/2021/1). Under this, the basis for calculating the reserve requirement is all the deposits of the subject of the requirement and the debt instruments it has issued. The types of liability are defined from the definitions given in Regulation (EU) 2021/379 of the European Central Bank of 22 January 2021 on the balance sheet items of credit institutions and of the monetary financial institutions sector (recast) (ECB/2021/2).
Eesti Pank's interpretation is that as of January 2022, the reserve requirement calculation base takes in the following liability items from Annexes 1 “Report on the balance of resources” and 11 “Report on the balance of liabilities related to securities” to Eesti Pank Governor's Decree No. 3 of 30 March 2021 “Establishment of supplementary reports on a credit institution’s balance sheet”:
2) other demand deposits;
3) time deposits;
4) savings deposits;
5) investment deposits;
6) other deposits;
7) syndicated loans;
8) other loans received;
9) loan resources for specific purposes;
10) subordinated loans;
11) repurchase transactions;
12) money market instruments;
13) subordinated debt securities;
14) other debt securities;
15) hybrid debt securities;
16) mortgage-backed covered bonds;
17) covered bonds with mixed collateral.
Until December 2021, the reserve requirement calculation base takes in the liability items from Annexes 2 “Report on the balance of resources” and 9 “Report on the balance of liabilities related to securities” to Eesti Pank Governor's Decree No. 7 of 29 May 2014 “Establishment of supplementary reports on a credit institution’s balance sheet”.
If a credit institution provides a group account service that meets the definition of notional cash pooling in the European Central Bank regulation on the balance sheet items of credit institutions (ECB/2021/2), then exceptionally, from January 2022, the data recorded in items "1) overnight deposit" and "2) other demand deposit" shall not reflect the data recorded under "Report on the balance of resources"1, which show the positive balances of the notional top account, but shall reflect the positive balances of the current accounts included in the notional cash pool (account type identifier 2 "current account") that are recorded under "Report on notional cash pooling".2
4. Deductions from the reserve requirement calculation base
The liabilities listed in point 3 that are to members of the minimum reserve system of the euro area, the European Central Bank or the national central banks of the euro area are discounted from the calculation basis for the minimum reserve requirement.
For the subject of the reserve requirement to be able to calculate the discounts on debt instruments issued, it must be able to show how much of those debt instruments are held by institutions whose positions it is permissible to discount. The standardised deduction of 15% is to be used when the subject of the reserve requirement is not able to identify the holders of money market instruments and debt instruments issued with maturities of up to two years.
Information on standardised deductions and the deduction rate can be found under "Standardised deductions" on the website of the European Central Bank.
5. Reserve requirements and application of them
The reserve requirement rates are set in Article 6 of Regulation (EU) 2021/378 of the European Central Bank of 22 January 2021 on the application of minimum reserve requirements (recast) (ECB/2021/1). The reserves are also shown under "Reserve coefficients" on the ECB website.
This regulation applies a reserve rate of 1% to liabilities included in the reserve requirement calculation base that have a contractual maturity of up to two years or that can be terminated by giving up to two years' notice. A reserve rate of 0% applies to the other liabilities used in the reserve requirement calculation base.
6. Calculating the size of the minimum reserve requirement
The calculation of the minimum reserve requirement starts from Appendix 1 "Format of the report on reserve requirement calculation" and Appendix 2 "Report on reserve requirement calculation" to Eesti Pank Governor’s Decree No 22 of 7 December 2010 “Establishment of reports on credit institutions’ reserve requirement calculation”.
7. Compliance with the minimum reserve requirement
Under Article 8 of Regulation (EU) 2021/378 of the European Central Bank of 22 January 2021 on the application of minimum reserve requirements (recast) (ECB/2021/1), the European Central Bank publishes the indicative calendar of reserve maintenance periods on its website at least three months before the start of the calendar year.
The size of the minimum reserve to be held during the maintenance period is calculated using the month-end data from two months (t-2) before the maintenance period. So the minimum reserve required to be held for a maintenance period starting in January is calculated using the data from the end of November.
Following from the indicative calendar of reserve maintenance periods, Eesti Pank publishes "The reporting periods of report on reserve requirement calculation" on its website.
For more on the minimum reserve requirement, see the Eesti Pank website.
1 Annex 1 to Eesti Pank Governor's Decree No 3 of 30 March 2021 "Establishment of supplementary reports on a credit institution's balance sheet".
2 Annex 13 to Eesti Pank Governor's Decree No 3 of 30 March 2021 "Establishment of supplementary reports on a credit institution's balance sheet".