The ECB uses open market operations to steer short-term interest rates, manage liquidity in the market and signal its monetary policy stance.

Open market operations are initiated by the ECB and executed in a decentralised manner by the national central banks. The ECB decides on the instrument to be used and the terms and conditions for its execution. Main and longer-term refinancing operations have been offered since 2008 on a fixed rate basis with full allotment of the total amount bid, with the counterparty securing the sufficient amount of collateral.

With regard to their aims, regularity and procedures, open market operations can be broken down as follows:

Main refinancing operations

Purpose: to provide the bulk of refinancing to the financial system

Frequency: weekly

Maturity one week

Type: liquidity-providing

Instrument: reverse transactions

Procedure: tenders executed by the national central banks

Longer-term refinancing operations

Purpose: to provide additional longer-term refinancing to the financial system

Frequency: monthly

Maturity 3 months

Type: liquidity-providing

Instrument: reverse transactions

Procedure: tenders executed by the national central banks 

Fine-tuning operations

Purpose: to manage liquidity in the market and steer interest rates, in particular in the event of unexpected fluctuations

Frequency: non-standardised

Maturity non-standardised

Type: liquidity-absorbing or liquidity-providing

Instruments: reverse transactions, foreign exchange swaps or the collection of fixed-term deposits

Procedure: tenders executed by national central banks; bilateral procedures may also be used. Under exceptional circumstances, fine-tuning bilateral operations may be executed by the ECB.

Structural operations

Purpose: to adjust the structural liquidity position of the Eurosystem vis-à-vis the financial sector

Frequency: non-standardised

Maturity non-standardised

Type: liquidity-absorbing or liquidity-providing

Instruments: reverse transactions, issuance of ECB debt certificates or outright transactions

Procedure: tenders executed by the national central banks

Standing facilities provide and absorb overnight liquidity, signal the general stance of monetary policy and bound overnight market interest rates.

Standing facilities are administered in a decentralised manner by the national central banks.

Two standing facilities are available to eligible counterparties on their own initiative, subject to their fulfilment of certain operational access conditions:

Marginal lending facility 

Purpose: meet one-off liquidity needs

Frequency: daily (on the counterparty’s initiative)

Maturity overnight

Type: liquidity-providing

Instrument: reverse transactions

Limitations: none (apart from the requirement to present sufficient assets eligible as collateral)

Deposit facility

Purpose: absorb one-off excess liquidity

Frequency: daily (on the counterparty’s initiative)

Maturity overnight

Type: liquidity-absorbing

Instrument: deposits

Limitations: none

The ECB’s minimum reserve system primarily aims to stabilise money market interest rates and create or enlarge a structural liquidity shortage.

The minimum reserve system applies to credit institutions and branches established in the euro area, except those benefiting from an exemption granted by the ECB.

The amount of minimum reserves to be held by each institution is determined by applying the reserve coefficients to a sub-set of liability categories in its balance sheet, the so-called ‘reserve base’.

Liabilities with a maturity up to and including two years are subject to a coefficient of 1% and the remaining liabilities to a coefficient of 0%.

The reserve base is determined using statistical information from balance sheet data, which institutions subject to reserve requirements are required to provide (monthly, as a rule), and applies to the maintenance period typically starting two calendar months later.

The amount of minimum reserves to be held by each institution is considered final on the business day preceding the start of each maintenance period.

Reserve maintenance periods are published in advance by the ECB, usually for the two subsequent years. Each maintenance period begins on the settlement day of the first main refinancing operation following the meeting of the Governing Council at which the monetary policy stance is assessed.

In order to pursue the objective of stabilising interest rates, the minimum reserve system allows institutions to make use of an averaging provision, i.e. compliance with reserve requirements is checked by comparing the institution’s average daily balances of current account holdings with the respective central bank over one maintenance period and the value of the reserve requirement calculated for the institution.

Holdings of required reserves are remunerated at the weighted average of the Eurosystem’s deposit facility rate. Up to the maintenance period starting on 21 December 2022, the required reserves were remunerated at the weighted average of the marginal rate of allotment in the main refinancing operations.

Average reserve holdings exceeding the required minimum reserves, the so-called ‘excess reserves’, are remunerated at 0% or at the Eurosystem’s deposit facility rate, whichever is lower. The exception was while the two-tier system for excess reserve remuneration (tiering) was in force. 

Whenever there is non-compliance with the reserve requirements, a financial penalty is applied based on the deficiency using a penalty rate.