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The public had previously known that ELA was a programme whereby banks lacking adequate collateral to use the ECB’s regular monetary policy operations could access funds via their national central bank. There was a key difference though: while at the ECB’s regular operations the risk of a bank failing to repay a loan would be shared among the national central banks, under ELA only the national central bank providing the funds would be on the hook.
ELA is designed to help banks meet short-term needs brought on by a lack of liquidity or eligible collateral. In recent years, what was supposed to be ‘emergency liquidity assistance’ had become an ‘everyday liquidity assistance’, as the programme was a lifeline for banks in countries most strongly affected by the eurozone debt crisis, namely Ireland, Greece and Cyprus.
Even though under ELA rules the national central bank takes the loss if a counterparty can’t repay a loan, the ECB Governing Council can revoke a national central bank’s ELA programme if it gets a two-thirds vote. The Governing Council consists of the heads of the 17 countries that use the euro and the Frankfurt-based six-man Executive Board.
The two-page document the ECB published Friday is not surprising. As a rule, the national central bank must inform the ECB “at the latest, within two business days after the operation was carried out” details about ELA loans. These include the names of counterparties, volume and maturity.
The procedures also show that, as you might expect, the Governing Council ups its scrutiny of ELA operations as the volume in question rises. When the volume is expected to surpass €500 million, then the national central bank has to inform the Governing Council as soon as possible prior to offering assistance. Moreover, if the overall volume of ELA is expected to exceed €2 billion “the Governing Council considers whether there is a risk that the ELA involved may interfere with the objectives and tasks of the Eurosystem [meaning the ECB and national central banks]".
There remain, however, some aspects of ELA shrouded in mystery. The ECB is still not publishing the total volume of ELA lending outstanding.
Further reporting © WSJ, 21.10.13