Decision of the European Central Bank of 29 July 2014 on measures relating to targeted longer-term refinancing operations (ECB/2014/34) (2014/541/EU)

Article 1 Definitions

For the purposes of this Decision, the following definitions shall apply:

(1)

‘Allotment reference month’ means the most recent month for which eligible net lending data is available for each TLTRO allotment;

(2)

‘Credit institution’ means a credit institution as defined in Appendix 2 (Glossary) of Annex I to Guideline ECB/2011/14;

(3)

‘Eligible loans’ means loans to non-financial corporations and households (including non-profit institutions serving households) resident in Member States whose currency is the euro, except loans to households for house purchases, and ‘resident’ for these purposes means the term as defined in Article 1 of Council Regulation (EC) No 2533/98(1);

(4)

‘Eligible net lending’ means gross lending in the form of eligible loans net of repayments of outstanding amounts of eligible loans during a specific period, as further detailed in Annex II;

(5)

‘Monetary financial institution’ (MFI) means the term as defined in Article 1 of Regulation (EC) No 25/2009 of the European Central Bank (ECB/2008/32)(2);

(6)

‘MFI code’ means a unique identification code for an MFI in the list of MFIs maintained and published by the ECB for statistical purposes in accordance with Regulation (EC) No 25/2009 (ECB/2008/32);

(7)

‘Outstanding amounts of eligible loans’ means outstanding eligible loans on the balance sheet, excluding eligible loans securitised or otherwise transferred without derecognition from the balance sheet, as further detailed in Annex II;

(8)

‘Participant’ means a counterparty eligible for Eurosystem monetary policy open market operations in accordance with Annex I to Guideline ECB/2011/14, which submits bids in TLTRO tender procedures either on an individual basis or on a group basis as a lead institution and which is subject to all the rights and obligations associated with its participation in the TLTRO tender procedures;

(9)

‘Relevant NCB’ means the NCB of the euro area Member State in which a participant is established.

Article 2 Targeted longer-term refinancing operations

1. The Eurosystem shall conduct eight TLTROs in accordance with a timeline published on the ECB website.

2. All outstanding TLTROs shall mature on a fixed date published on the ECB website.

3. TLTROs shall be:

(a) liquidity-providing reverse operations;

(b) executed in a decentralised manner by the NCBs;

(c) executed through standard tenders; and

(d) executed in the form of fixed rate tender procedures.

4. The standard conditions under which the NCBs stand ready to enter into credit operations shall apply in respect of TLTROs, unless otherwise specified in this Decision. These conditions shall include the procedures for conducting open market operations, the criteria determining the eligibility of counterparties and collateral for the purposes of Eurosystem credit operations and the sanctions in the event of non-compliance with counterparty obligations, each as laid down in the general and temporary legal frameworks applicable to refinancing operations and as implemented in NCBs' contractual and/or regulatory national frameworks.

5. In the event of any discrepancy between this Decision and Guideline ECB/2011/14, together with any other ECB legal act laying down the legal framework applicable to longer-term refinancing operations and/or any national measures implementing it at national level, this Decision shall prevail.

Article 3 Participation

1. Institutions may participate in TLTROs on an individual basis if they are eligible counterparties for Eurosystem monetary policy open market operations. An institution participating in TLTROs on an individual basis may not participate on a group basis.

2. Institutions may participate in TLTROs on a group basis by forming a TLTRO group. Participation on a group basis is relevant for the purposes of calculating the applicable borrowing limits and benchmarks as laid down in Article 4 below and the associated reporting obligations as laid down in Article 8 below. Participation on a group basis shall be subject to the following restrictions:

(a) an institution shall not be a member of more than one TLTRO group;

(b) an institution participating in TLTROs on a group basis shall not participate on an individual basis;

(c) the institution appointed as lead institution shall be the only member of the TLTRO group that may participate in TLTRO tender procedures; and

(d) the composition and the lead institution of a TLTRO group shall remain unchanged for all eight TLTROs, subject to paragraphs 5 and 6 below.

3. Participation in TLTROs through a TLTRO group shall require that the following conditions are fulfilled.

(a) As of 31 July 2014, each member of the group shall:

(i)

have a close link to another member of the group within the meaning of ‘close link’ specified in the glossary to Annex I to Guideline ECB/2011/14 and references therein to ‘counterparty’, ‘guarantor’, ‘issuer’ or ‘debtor’ shall be understood as referring to a group member; or

(ii)

hold required reserves with the Eurosystem in accordance with Regulation (EC) No 1745/2003 of the European Central Bank (ECB/2003/9)(3) indirectly through another member of the group or be used by another member of the group for indirectly holding required reserves with the Eurosystem.

(b) The group shall appoint one group member as the lead institution for the group. The lead institution shall be an eligible counterparty for Eurosystem monetary policy open market operations.

(c) All members of the TLTRO group shall be credit institutions established in Member States whose currency is the euro, which fulfil the criteria laid down in paragraphs (a) and (b) of Section 2.1 of Annex I to Guideline ECB/2011/14.

(d) The lead institution shall apply for group participation to its NCB in accordance with timelines approved by the Governing Council and published on the ECB website. The application shall include:

(i)

the name of the lead institution;

(ii)

the list of the MFI codes and names of all the institutions to be included in the TLTRO group;

(iii)

an explanation of the basis for a group application, including a list of the close links and/or indirect reserve holding relationships between the members of the group (identifying each member by its MFI code);

(iv)

in the case of group members to which paragraph 3(a)(ii) applies: a written confirmation from the lead institution certifying that every member of its TLTRO group has formally decided to be a member of the TLTRO group in question and not to participate in TLTROs as individual counterparties or as members of other TLTRO groups, together with appropriate evidence that the relevant written confirmation from the lead institution has been executed by duly authorised signatories; the existence of valid agreements, such as those for the indirect holding of minimum reserves pursuant to Article 10(2) of Regulation (EC) No 1745/2003 (ECB/2003/9), shall allow a lead institution to make the necessary certification in respect of its TLTRO group members when those agreements explicitly state that the relevant group members participate exclusively in Eurosystem open market operations through the lead institution; the relevant NCB, in cooperation with the NCBs of the relevant group members, may decide to trigger ex post controls, on form and in substance, in respect of the validity of such a written confirmation; and

(v)

in the case of group members to which paragraph 3(a)(i) applies: (1) a written confirmation from every such member of its formal decision to be a member of the TLTRO group in question and not to participate in TLTROs as individual counterparties or as members of other TLTRO groups; and (2) appropriate evidence, confirmed by the NCB of the relevant group member, that this formal decision has been made at the highest decision-making level of the member's corporate structure (such as the Board of Directors or equivalent decision making body) in accordance with any applicable legal and statutory provisions.

(e) The lead institution has obtained confirmation from its NCB that the TLTRO group has been recognised as such. Prior to issuing its confirmation, the relevant NCB may request the lead institution to provide any additional information relevant for its assessment of the potential TLTRO group. In its assessment of a group application, the relevant NCB must also take into account the assessment of NCBs of group members that may be necessary, such as verifications of documentation provided in accordance with paragraph (3)(d) above.

For the purposes of this Decision, credit institutions subject to consolidated supervision, including branches of the same credit institution, may also be regarded as suitable applicants for TLTRO group recognition and shall be required to meet the restrictions and conditions laid down in this article mutatis mutandis. This provision facilitates the formation of TLTRO groups among such institutions, where these institutions are part of the same legal entity. For the purpose of providing a confirmation in respect of the formation or change in composition of a TLTRO group of this nature, the provisions of paragraphs (3)(d)(iv) and (6)(c)(ii)(4) shall apply respectively.

4. If one or more of the institutions included in the application for TLTRO group recognition do not fulfil the conditions of paragraph 3, the relevant NCB may partially reject the application of the proposed group. In this case, the institutions submitting the application shall decide to act as a TLTRO group with the composition reduced accordingly or to withdraw the application for TLTRO group recognition.

5. In exceptional cases, where objective justifications arise, the Governing Council may decide to deviate from the restrictions and conditions noted in paragraphs 2 and 3.

6. Without prejudice to paragraph 5 above, the composition of a group recognised in accordance with paragraph 3 may change in the following circumstances:

(a) A member of the group shall be excluded from the TLTRO group if:

(i)

it loses its status as a credit institution; or

(ii)

it no longer fulfils the requirements of paragraph 3(a) and (c).

In the case of (i) or (ii) above, the lead institution shall be required to notify its NCB of the change in status of its group member(s).

(b) If a lead institution loses its eligibility as a counterparty for Eurosystem monetary policy open market operations, the TLTRO group shall lose its recognition as a TLTRO group.

(c) If, in relation to the TLTRO group, additional close links or indirect holding of required reserves with the Eurosystem were established after 31 July 2014, the TLTRO group composition may change to allow for the addition of a new member to the TLTRO group provided that:

(i)

the lead institution applies to its NCB for the recognition of a change in the TLTRO group's composition;

(ii)

the application includes: (1) the name of the lead institution; (2) the list of the MFI codes and names of all the institutions that should be included in the new composition of the TLTRO group; (3) an explanation of the basis for the application, including a list of the changes to the close links and/or indirect reserve holding relationships between the members of the group (identifying each member by its MFI code); (4) in the case of group members to which paragraph (3)(a)(ii) applies: a written confirmation from the lead institution certifying that every member of its TLTRO group has formally decided to be a member of the TLTRO group in question and not to participate in TLTROs as individual counterparties or as members of other TLTRO groups; the existence of valid agreements, such as those for the indirect holding of minimum reserves pursuant to Article 10(2) of Regulation (EC) No 1745/2003 (ECB/2003/9), shall allow a lead institution to make the necessary certification in respect of its TLTRO group members when those agreements explicitly state that the relevant group members participate exclusively in Eurosystem open market operations through the lead institution; the relevant NCB, in cooperation with the NCBs of the relevant group members, may decide to trigger ex post controls, on form and in substance, in respect of the validity of such a written confirmation; and (5) in the case of group members to which paragraph (3)(a)(i) applies, a written confirmation from any additional member of its formal decision to be a member of the TLTRO group in question and not to participate in TLTROs as individual counterparties or as members of other TLTRO groups and a written confirmation from each institution within the TLTRO group (included in the old and the new compositions) of its formal decision to agree to the new composition of the TLTRO group together with appropriate evidence, confirmed by the NCB of the relevant group member, as detailed in paragraph (3)(d)(v) above;

(iii)

the lead institution has obtained confirmation from its NCB that the changed TLTRO group has been recognised as such. Prior to issuing its confirmation, the relevant NCB may request the lead institution to provide any additional information relevant for its assessment of the new TLTRO group composition. In its assessment of a group application, the relevant NCB must also take into account the assessment of NCBs of group members that may be necessary, such as verifications of documentation provided in accordance with paragraph (6)(c)(ii) above.

7. Provided that facts entailing the exclusion of a group member have occurred or changes to the composition of a TLTRO group have been accepted by the Governing Council in accordance with paragraph 5 or 6, the following requirements shall apply, unless otherwise decided by the Governing Council:

(a) the lead institution may participate in a TLTRO on the basis of the new composition of its TLTRO group for the first time six weeks after that lead institution submits the successful application for the recognition of the group composition change to its NCB;

(b) an institution that is no longer a member of a TLTRO group shall not participate in any further TLTRO either individually or as member of another TLTRO group, unless it submits a new application in accordance with paragraph 1, 3 or 6.

Article 4 Limits on borrowing

1. Participation in TLTROs on an individual basis or as the lead institution of a TLTRO group shall be subject to borrowing limits. The borrowing limits applicable to an individual participant shall be calculated on the basis of the loan data in respect of outstanding amounts of eligible loans and eligible net lending of the individual participant. The borrowing limits applicable to the lead institution of a TLTRO group shall be calculated on the basis of the aggregated loan data in respect of outstanding amounts of eligible loans and eligible net lending of all members of the TLTRO group. Where changes to the composition of a TLTRO group have been recognised in accordance with paragraph 5 or 6 of Article 3, all subsequent calculations of borrowing limits shall be performed on the basis of balance sheet data of the new composition of the TLTRO group. The borrowing limits applicable to each participant in respect of each TLTRO shall be considered to represent a maximum bid limit for each such participant and the rules applicable to bids exceeding the maximum bid limit, as laid down in Section 5.1.4 of Annex I to Guideline ECB/2011/14, shall apply.

2. In the two successive TLTROs to be conducted in September and December 2014, each participant shall be entitled to borrow an amount that cumulatively does not exceed an initial TLTRO borrowing allowance. Each participant's initial TLTRO borrowing allowance shall equal 7 % of their total outstanding amount of eligible loans on 30 April 2014. Annex I outlines the relevant technical calculations. Any unused initial TLTRO allowance shall not be available in any subsequent TLTRO.

3. In respect of each subsequent TLTRO conducted quarterly during the period from March 2015 to June 2016, each participant shall be entitled to an additional TLTRO borrowing allowance. Each participant's additional TLTRO borrowing allowance shall equal the higher number of (i) zero and (ii) three times that participant's cumulative eligible net lending provided between 1 May 2014 and the respective allotment reference date, in excess of the benchmark determined in accordance with paragraph 4 below, less any amount previously borrowed in TLTROs conducted in the period from March 2015. Annex I outlines the relevant technical calculations.

4. A participant's benchmark shall be determined on the basis of eligible net lending in the 12 month period from 1 May 2013 to 30 April 2014 (the ‘benchmark reference period’), as follows:

(a) For participants that report positive eligible net lending in the benchmark reference period or if the participant was established after 1 May 2013, the applicable benchmark shall be zero.

(b) For participants that report negative eligible net lending in the benchmark reference period, the benchmark shall be calculated by determining the average monthly eligible net lending of each participant in the benchmark reference period and multiplying this average figure by the number of months elapsed between 30 April 2014 and the end of the allotment reference month. This formula shall apply for allotment reference months up to and including April 2015. Thereafter, the benchmark shall remain unchanged at the value reached on 30 April 2015. Annex I outlines the relevant technical calculations.

Article 5 Interest

The interest rate applicable for TLTROs shall be fixed over the life of each operation at the rate for main refinancing operations prevailing at the time of the tender announcement in respect of the relevant TLTRO, plus a fixed spread of 10 basis points. Interest shall be payable in arrears upon maturity of the operation, or upon early repayment as provided for in Articles 6 and 7, as applicable.

Article 6 Early repayment

1. Commencing 24 months after each TLTRO, participants shall have the option to reduce the amount of, or terminate, TLTROs before maturity.

2. Early repayment dates shall be set at a six-month frequency, on days that coincide with the settlement day of a Eurosystem main refinancing operation, on dates to be further specified by the Eurosystem.

3. In order to avail of the early repayment procedure, a participant shall notify the relevant NCB that it intends to repay under the early repayment procedure on the early repayment date, at least one week in advance of that early repayment date.

4. The notification referred to in paragraph 3 shall become binding on the participant one week before the early repayment date to which it refers. Failure by the participant to settle, in full or in part, the amount due under the early repayment procedure by the repayment date may result in the imposition of a financial penalty as set out in Section 1 of Appendix 6 to Annex I to Guideline ECB/2011/14. The provisions of that section which apply to infringements of rules related to tender operations shall apply where a participant fails to settle, in full or in part, the amount due on the relevant early repayment date. The imposition of a financial penalty shall be without prejudice to the relevant NCB's right to exercise the remedies provided for on the occurrence of an event of default as set out in Annex II to Guideline ECB/2011/14.

Article 7 Mandatory early repayment

1. Participants in the TLTROs whose cumulative eligible net lending in the period from 1 May 2014 to 30 April 2016 is below their applicable benchmark as at 30 April 2016 shall be required to repay their initial and additional TLTRO borrowings in full on 29 September 2016, unless an alternative date is otherwise specified by the Eurosystem. Annex I outlines the technical calculations.

2. If a participant's total borrowings in respect of its additional allowance in the TLTROs conducted from March 2015 to June 2016 exceed the additional allowance calculated as of the allotment reference month of April 2016, then the amount of this excess additional borrowing shall be payable on 29 September 2016, unless an alternative date is otherwise specified by the Eurosystem. Annex I outlines the technical calculations.

3. Where changes to the composition of a TLTRO group have been recognised in accordance with paragraph 5 or 6 of Article 3, the calculation for the purpose of the mandatory early repayments of the lead institution (including the applicable benchmark) shall be performed on the basis of the balance sheet data of the new composition in respect of all borrowings, whether conducted before or after the change to the TLTRO group.

4. The relevant NCB shall notify its participants that are subject to mandatory early repayment by the latest on 31 August 2016, unless an alternative date is otherwise specified by the Eurosystem. A mandatory early repayment notice provided by an NCB pursuant to this Article 7 or Article 9 below shall not constitute a notice of an event of default.

5. Failure by the participant to settle, in full or in part, the amount due under the mandatory early repayment procedure by the repayment date may result in the imposition of a financial penalty as set out in Section 1 of Appendix 6 to Annex I to Guideline ECB/2011/14. The provisions of that section which apply to infringements of rules related to tender operations shall apply where a participant fails to settle, in full or in part, the amount due on the mandatory early repayment date. The imposition of a financial penalty shall be without prejudice to the NCB's right to exercise the remedies provided for on the occurrence of an event of default as set out in Annex II to Guideline ECB/2011/14 where a participant fails to settle, in full or in part, the amount due under the mandatory early repayment procedure by the repayment date.

Article 8 Reporting requirements

1. Participants in TLTROs shall submit accurately completed reporting templates to their NCB in accordance with:

(a) the prescribed content and timelines as approved by the Governing Council and published on the ECB website; and

(b) the guidelines detailed in Annex II.

2. The terms used in the reporting template shall be understood with reference to those terms as defined in Regulation (EC) No 25/2009 (ECB/2008/32).

3. In complying with the reporting requirements to which they are subject in accordance with paragraph 1, participants shall apply the applicable minimum standards for transmission, accuracy, compliance with concepts and revisions specified in Annex IV to Regulation (EC) No 25/2009 (ECB/2008/32).

4. If an institution participates in a TLTRO and as long as it has credit outstanding under a TLTRO, it shall be required to submit completed data reporting templates quarterly in accordance with paragraph 1 until September 2018, or until full early repayment, as applicable.

5. Participants shall submit reporting templates relative to the benchmark reference period prior to first participating in TLTROs within the timelines published on the ECB website for sending completed reporting templates to the relevant NCB.

6. Lead institutions of TLTRO groups shall submit data reporting templates reflecting aggregated data across all members of the TLTRO group. The lead institution's NCB or an NCB of a member of a TLTRO group may, subject to coordination with the lead institution's NCB, require that the lead institution submits disaggregated data for each individual group member.

7. Where changes to the composition of a TLTRO group have been recognised in accordance with paragraph 5 or 6 of Article 3, the lead institution shall submit reporting templates to determine the relevant borrowing allowance and the applicable benchmark reflecting the new composition of the TLTRO group within the timelines published on the ECB website for sending completed reporting templates to the relevant NCB.

8. Participants in TLTROs shall be required to have an annual examination of accuracy in respect of data reported in accordance with paragraph 1. This exercise may be performed by an external auditor, which could occur in the context of an annual audit. Equivalent arrangements, as approved by the Eurosystem, may be used by participants in lieu of engaging an external auditor. The participant's NCB shall be informed of the result of this examination, which shall be shared, in the case of a TLTRO group participation, with the NCBs of the TLTRO group members. At the request of the participant's NCB, detailed results of the examinations carried out under this paragraph shall be provided to that NCB and, in the case of group participation, subsequently be shared with the NCBs of the group members.

9. Information on the composition of the TLTRO groups will be stored in the Register of Institutions and Affiliates Database (RIAD), to be shared across the Eurosystem.

Article 9 Non-compliance with reporting requirements

1. If a participant fails to comply with the reporting obligations laid down in Article 8 above:

(a) borrowing limits shall be set at zero where a participant fails to report data for the calculation of borrowing limits for either of the initial or additional allowance by the relevant deadline; and

(b) the full amount of borrowings in respect of all TLTROs shall become payable where a participant fails to report data for the purpose of assessing if mandatory early repayments are applicable and calculating the relevant repayments, as necessary.

Prior to the initiation of a measure pursuant to this paragraph, the concerned participant shall be given an opportunity to provide explanations if it considers that the non-compliance was due to circumstances beyond its control.

2. The provisions in paragraph 1 above shall be without prejudice to any sanction that may be imposed in accordance with Decision ECB/2010/10(4) in respect of the reporting obligations laid down in Regulation (EC) No 25/2009 (ECB/2008/32).

3. Where errors in the data submitted in the reporting templates are identified and notified by either a participant or the NCB, the Eurosystem shall conduct an assessment of the impact of the relevant error and undertake appropriate action, including the possibility of requiring mandatory early repayment.

Article 10 Entry into force

This Decision shall enter into force on the date of its publication.

Done at Frankfurt am Main, 29 July 2014.

The President of the ECB

Mario Draghi