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Financial Statements<br />
5.1 Main refinancing operations<br />
Main refinancing operations are regular<br />
liquidity-providing reverse transactions<br />
that were executed by the<br />
NCBs with a weekly frequency and<br />
a maturity of two weeks in the form<br />
of standard (variable rate) tender<br />
operations. The ECB Governing<br />
CouncilÕs decision of December 1,<br />
2003, 4 resulted in a reduction of the<br />
maturity of the main refinancing<br />
operation from two weeks to one<br />
week from March 8, <strong>2004</strong>. All counterparties<br />
which fulfill the general<br />
eligibility criteria may submit bids<br />
within a timeframe of 24 hours from<br />
the tender announcement.<br />
The main refinancing operations<br />
are the most important open market<br />
operations conducted by the Eurosystem,<br />
playing a pivotal role in signaling<br />
the stance of monetary policy.<br />
They provide the bulk of liquidity to<br />
the financial sector.<br />
5.2 Longer-term refinancing operations<br />
Longer-term refinancing operations are<br />
regular liquidity-providing reverse<br />
transactions with a monthly frequency<br />
and a maturity of three<br />
months. They are aimed at providing<br />
counterparties with additional longer-term<br />
refinancing and are executed<br />
through standard tenders by<br />
the NCBs. All longer-term refinancing<br />
operations conducted in <strong>2004</strong> were<br />
carried out in the form of variable<br />
rate tenders.<br />
5.3 Fine-tuning reverse operations<br />
Fine-tuning reverse operations are executedonanadhocbasiswithaview<br />
to managing the liquidity situation<br />
in the market and steering interest<br />
rates, in particular to smooth the effects<br />
on interest rates caused by un-<br />
expected liquidity fluctuations in the<br />
market. The choice of instruments<br />
and procedures depends on the type<br />
of transaction and the underlying motives.<br />
Fine-tuning operations are normally<br />
executed by the NCBs through<br />
quick tenders or through bilateral<br />
procedures.ItisuptotheGoverning<br />
Council of the ECB to empower the<br />
ECB to conduct fine-tuning operations<br />
itself under exceptional circumstances.<br />
In <strong>2004</strong>, no such operations were<br />
conducted.<br />
5.4 Structural reverse operations<br />
The ECB may use structural reverse operations<br />
to adjust the structural position<br />
of the Eurosystem vis-a‘-vis the<br />
financial sector.<br />
In <strong>2004</strong>, no such operations were<br />
carried out.<br />
5.5 Marginal lending facility<br />
Counterparties may use the marginal<br />
lending facility to obtain overnight<br />
liquidity from NCBs at a prespecified<br />
interest rate against eligible assets.<br />
The facility is intended to satisfy<br />
counterpartiesÕ temporary liquidity<br />
needs. Under normal circumstances,<br />
theinterestrateonthefacilityprovides<br />
a ceiling for the overnight interest<br />
rate.<br />
The marginal lending facility was<br />
accessed repeatedly in <strong>2004</strong>.<br />
5.6 Credits related to margin calls<br />
Credits related to margin calls arise<br />
when the value of underlying assets<br />
regarding credit extended to credit<br />
institutions increases beyond collateral<br />
requirements, obligating the central<br />
bank to provide counterparties<br />
with additional credit to offset the<br />
value in excess of requirements. If<br />
4 Guideline of the European Central Bank of 1 December 2003 amending Guideline ECB/2000/7 on monetary<br />
policy instruments and procedures of the Eurosystem (ECB/2003/16).<br />
92 ×<br />
<strong>Annual</strong> <strong>Report</strong> <strong>2004</strong>
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