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BoS adjustments for Eurosystem operations

Portorož Business Conference. BoS adjustments for Eurosystem operations. Portorož, 17 November 2006. Mitja Gaspari. 1. ESCB Institutional arrangements 2. Legal Convergence requirements Operational adjustments of BoS Organizational adjustment s of BoS. ESCB Institutional arrangements.

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BoS adjustments for Eurosystem operations

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  1. Portorož BusinessConference BoS adjustmentsfor Eurosystem operations Portorož, 17 November 2006 Mitja Gaspari

  2. 1. ESCB Institutional arrangements 2. Legal Convergence requirements • Operational adjustments of BoS • Organizationaladjustments of BoS

  3. ESCB Institutional arrangements European System of Central Banks • Composition - NCB's of Eurosystem Member States - NCB's of Member States with derogation • Decision making organs - Eurosystem: Governing Council and Executive Council - EU 25: General Council 3. Governing Council decision making -at present -after Eurosystem enlargement 4. Primary policy objective: price stability - Eurosystem: close but under 2% on medium term - NCB's of Member States with derogation: convergence inflation criterion

  4. ESCB Institutional arrangements 5. Common operational elements of the Eurosystem - monetary policy instruments - TARGET - collateral for monetary operations 6. Central bank independence 7. Limitations in operational activities - prohibition of privileged access - prohibition of monetary financing 8. Coordination of measures on national level - duty of all Member States (with the exception of UK) to consult ECB about draft legislative provisions falling within the ECB's fields of competence

  5. ESCB Institutional arrangements Fields of competence - definition and implementation of the monetary policy of the Community - conduct of foreign exchange operations - holding and management of the official foreign reserves of the Member States - smooth operation of payment systems - currency matters - independence of central banks - monetary and financial statistics - rules influencing stability of financial institutions and markets 9. Capital inscription and transfer of fx reserves to the ECB -capital key for Slovenia: 0.33 10. Distribution of monetary income and coverage of ECB losses -capital key

  6. Legal Convergence requirements Areas of legal convergence assessment • Compatibility with central bank independence and confidentiality • Compatibility with prohibition of monetary financing and privileged access • Compatibility with spelling of the name "euro" • Legal integration into the Eurosystem

  7. Legal Convergence requirements Removed incompatibilities in the amended Bank of Slovenia Law (April 2006) Central bank independence • Institutional independence: elimination of potential approval of Ministry of finance in managing fx reserves • Personal independence: elimination of grounds for dismissal of the governor, incompatible with Statute; restoring security of tenure for members of BoS Council in relation to Law on corruption prevention.

  8. Legal Convergence requirements (BoS Law continued) Legal integration into the Eurosystem - Objectives: subordination of secondary objectives (support to general economic policy and financial stability)to primary objective of price stability harmonized with the Treaty • Tasks: banknote issuing harmonized with the requirements of the ECB Statute • Instruments: subordination to ECB authority reinforced • International cooperation: ECB approval after Euro adoption introduced Rules on euro spelling:respected

  9. Operational framework Transition to ESCB monetary policy instruments • Frozen tolar liquidity in BoS bills: to be releasedgradually by end April 2007 • Minimum reserve requirements: adjusted, except remuneration (to be effective from 1 January, 2007) • Open market operations: currently in testing with theECB, to be implemented from 1 January, 2007 • Standing facilities: adjusted, to be implemented from 1 January, 2007

  10. Operational framework Counterparties and collateral for monetary operations 1. Counterparties: list established, based on ECB criteria 2. Eligible assets: list of assets established - until end 2006 selected tier 1 assets with BoS and domestic public sector as issuers - after 1 January, 2007 single ESCB list with marketable and non marketable financial assets (including bank loans) • Risk control measures: initial margins established in relation to maturity and market value of eligible assets. Range of initial margins: -marketable instruments: 0,5 to 18% (Daily valuation at market rates) -non marketable instruments: 9 to 41%

  11. Operational framework Foreign exchange intervention After transfer of reserves (app. 200 mio €) according to capital key (app. 0,33) on January 1, 2007, options favored by Bank of Slovenia are: • cooperation in management of fxreserves within the ESCB • participation in decentralized intervention, based on cooperation

  12. Operational framework Supporting framework for monetary policy 1. TARGET participation Phasing-in in three steps: -remote participation: effective since July 2005 - fallback solution: effective from 1 January, 2007 - TARGET2: envisaged in November 2007 Fallback solution until TARGET2: - bank settlement accounts with Bundesbank RTGSplus - BoS home account with Bundesbank - mirroring banks home accounts with BoS

  13. Operational framework 2. STEP 2 participation - effective since November 2004 - Entry point: BoS - Banks participation on voluntary basis (major banks participating) • Securities settlement system - cross border use of collateral: Correspondent Central Banking Model (CCBM) with standardized custody agreements between NCB's to be implemented from 1 January, 2007 - KDD as central securities depository for domestic eligible assets

  14. Operational framework 4. Collection of statistical data Areas covered by BoS: -monetary, financial institutions and markets statistics -balance of payments statistics -financial accounts statistics National reporting units: legal entities, sole proprietors, branches from EU and from third countries. Preparedness: requirements fulfilled

  15. Organizational framework Changes in organizational structure of BoS Objectives: - Rational support for EMU functions - Functional homogeneity for transparent division of tasks • Reinforced horizontal communication • Consolidation of managerial structure in line with amended BoS law • Cost neutral transition Basis: • SWOT analysis by KPMG • Comparative analysis of other NCB's within the Eurosystem

  16. Organizational framework Targeted structure: Consolidation of departments in five functional areas First steps: (effective since November) • Merger of Banking Department and Central Banking Operations Department • Establishment of Secretariat (with transfer of staff from International Relations Division) to reinforce support for Governing Council activities

  17. Organizational framework Targeted organizational structure Statistics and research Central Banking Operations Supporting activities Banking Supervision General Secretariat Statistics Analysis and research Financial stability Asset management Market operations Payment System Banknotes operations Accounting Information technology Secretariat Legal issues Controlling Human Resources Organization Office services Premises Adjustments in implementation are possible.

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