In response to an article in “SIMERINI” newspaper yesterday, in which it was alleged that the President of the European Central Bank (ECB), in a written reply to a question from the MEP, Andreas Pitsillides, places responsibility on the Central Bank of Cyprus (CBC) for the provision of Emergency Liquidity Assistance (ELA) to Cyprus banks, as well as in response to other recent press reports regarding ELA, the CBC would like to clarify the following:
- The letter from the President of the ECB does not “blame” the CBC for the provision of ELA. In his letter, Mr Draghi outlines the framework governing the provision of ELA by the national central banks as a tool for tackling emergency situations and concludes by noting the way in which the Bank of Cyprus will be able to gradually reduce its dependence on ELA.
- The CBC emphasises that ELA is provided to a supervised and solvent credit institution which faces a liquidity shortage that cannot be covered from the market or from Eurosystem credit operations. In assessing an ELA request by a credit institution, the CBC also assesses the additional risks related to financial stability. The provision of ELA is undertaken by the CBC, which assumes the costs and risks that may arise from the transaction. The obligation of the credit institution is towards the CBC, which provides ELA after obtaining adequate collateral. At the time of the granting of ELA, a corresponding obligation of the CBC towards the Eurosystem is generated.
- Before granting ELA to a credit institution, the CBC submits a note to the ECB and asks its Governing Council for non-objection. In this note, evidence is included as to why the request is justified.
For more information on the provision of ELA, please visit:
http://www.ecb.europa.eu/pub/pdf/other/elaprocedures.en.pdf?e0e0688fa82a174563d3cc838d7f5de1