Current Developments in Monetary and Financial Law, Vol. 3
Chapter

APPENDIX II Emergency Liquidity Financing Provisions from 19 Countries

Author(s):
International Monetary Fund
Published Date:
April 2005
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CountryEmergency Liquidity Financing Provision*
ArgentinaChapter of the Reserve Bank of the Argentine Republic, Law No. 24, 144 (last amendment: March 2002)
Chapter V—Transactions of the BCRA
Article 17
The bank is empowered to:
[…]
(b) grant rediscounts to financial entities on account of temporary iliquidity for a maximum amount equivalent to the equity of each entity. Rediscount transactions shall imply the transfer of ownership of financial entities securities to the BCRA;
(c) advance funds to the accounts of financial entities due to temporary iliquidity, upon the submission of a collateral or any other security, or through the imposition of an encumbrance of a special or general nature on certain assets, provided that the total amount of rediscounts and advances so granted to each institution does not, under any circumstance, exceed the limit determined in the previous subparagraph.
Should the financial system require appropriate liquidity or, under general and extraordinary circumstances, in the majority of the board of directors’ opinion it were advisable to extend the terms and enlarge the maximum amounts granted to each institution under paragraph b) above and the first paragraph of this subparagraph, the BCRA shall be empowered to do so.
Whenever this extraordinary financing is granted, shareholders shall at least pledge, in addition to the Institution’s assets being granted as collateral, the Institution’s controlling interest and agree with the contingent subsequent implementation of the procedure set forth in Article 35 bis of the Financial Entities Act. In the case of financial entities acting as cooperative corporations, their pledge of capital will be substituted by an irrevocable decision by the shareholders assemblies to apply, in due course of time, Article 35 bis. State-owned banks may be exempted from this requirement.
[…]
Resources to be supplied to financial entities in accordance with the procedures provided under subparagraphs b) and c) above, shall, under no circumstances, lack guarantee or be granted as an overdraft in current accounts. These transactions shall firstly be guaranteed by publicly offered securities marked to the market.
BotswanaBank of Botswana Act No. 19/1996 (last amendment: Act No. 19/1999)
Part VII. Relations with Financial Institutions
37 Operations with Account Holders
(3) The Bank may, on such terms and conditions as the Board may from time to time determine, grant to account holders loans and advances for periods not exceeding 92 days
(a) secured by […]; or
(b) unsecured or secured by such other assets, on such special terms and conditions as the Board shall determine when, in its opinion, such a loan or advance is exceptionally necessary to meet the liquidity requirements of the borrower.
BulgariaLaw on the Bulgarian National Bank, State Gazette (SG) issue 46 of June 10, 1997 (last amendment: SG 54/1999

Chapter III—Structure and Management)

Article 20
(2) In case any systemic risk for the stability of the banking system arises, the Banking Department shall perform the lender of last resort function under the terms and procedure set forth by this Law and by the regulations as adopted by the Managing Board.
Chapter V—Monetary Functions and Operations of the Bank

Article 33
(1) The Bulgarian National Bank may not extend credits to banks, except in the cases under para. 2.
(2) Upon emergence of a liquidity risk that may affect the stability of the banking system, the Bulgarian National Bank may extend to a solvent bank lev-denominated credits with maturity no longer than three months, provided they are fully collateralized by gold, foreign currency or other such high-liquid assets. The terms and procedure for extension of such credits, as well as the criteria establishing the occurrence of a liquidity risk, shall be determined by a regulation of the Bulgarian National Bank.
(3) Credits under para. 2 may be extended solely up to the amount of the excess of the lev equivalent of the gross international foreign exchange reserves over the total amount of monetary liabilities of the Bulgarian National Bank.
ChileOrganic Law Establishing the Central Bank of Chile, Law No. 18840 of October 10, 1989
Title III—The Bank’s Powers and Operations
Fifth Section. The Authority to Safeguard the Stability of the Financial System
Article 36
For the purpose of safeguarding the stability of the financial system, the Bank shall be empowered to:
1. Grant banking and financial institutions loans in case of emergency for a period not to exceed 90 days, when the problems stem from a temporary shortage of liquidity. To renew these loans, a Board decision adopted by a majority of the full membership, with a prior report to the Superintendency of Banks and Financial Institutions shall be required. The Bank may make the granting of loans contingent upon compliance by the borrower with particular rules of financial administration. In the situation foreseen in this numeral, the Bank may, accordingly, acquire instruments from the placement or investment portfolios of the abovementioned institutions;
2. Grant loans to or acquire assets from banking and financial institutions, in conformity with the provisions of Article 120, fourth paragraph and Article 129, second paragraph of the General Banking Law; and
3. Assist in the drafting of the agreements referred to in the second paragraph of Title XV of the General Banking Law and have a free hand in drafting the provisions of such agreements, being further empowered to remit or cancel part of the debts involved.
HungaryAct LVIII of 2001 on the National Bank of Hungary
Article 14
Emergency Loans to Credit Insitutions
In the event that circumstances arise which jeopardize the stability of the financial system, the NBH may extend an emergency loan to the credit institution. The NBH may make the extension of such a loan subject to performance of actions by the Hungarian Financial Supervisory Authority (hereinafter referred to as the “Supervisory Authority”) or performance of actions by the credit institution, at the proposal of the Supervisory Authority.
IcelandThe Central Bank of Iceland Act No. 36 of May 5, 1986 (last amendment: August 2000)
Chapter III—Domestic Activities of the Central Bank Article 7
The Central Bank of Iceland may advance loans to institutions referred to in Article 6 and engage in deposit transactions with them by way of the purchase of securities or in another manner against collateral which the Bank deems valid. These transactions may be in domestic or foreign currency.
JapanThe Bank of Japan Law of June 11, 1997 (last amendment: January 6, 2001)
Chapter II—Policy Board
Article 15. Powers
2. In addition to those listed in the preceding Paragraph as being subject to the Board’s vote, the following matters shall also be decided by the Board;
(1) making loans prescribed by Article 37, Paragraph 1, and executing business prescribed by Article 38, Paragraph 2;
[…]
Chapter IV—Business
Article 37. Temporary loans to financial institutions
The Bank of Japan, irrespective of the provisions of Article 33, Paragraph 1, may provide uncollateralized loans to financial institutions (defined as those engaged in the business of taking bank deposits (deposits prescribed by Article 2, Paragraph 2 of the Deposit Insurance Law, Law No. 34 of 1971) as well as engaging in exchange transactions; the same definition shall apply hereinafter) and other financial business entities prescribed by a Cabinet Order (hereinafter referred to as “financial institutions” together) for a period within that prescribed by a Cabinet Order when they unexpectedly experience a temporary shortage of funds for payment due to accidental causes, including computer system problems, whereby the business operations of the financial institutions may be seriously hampered if the shortage is not recovered swiftly, provided that the advance is necessary to secure the smooth settlement of funds among financial institutions.
2. The Bank shall, when providing loans as prescribed by the preceding Paragraph, report the fact to the Prime Minister and the Minister of Finance without delay.
Chapter IV—Business
Article 38. Business contributing to the maintenance of an orderly financial system
The Prime Minister and the Minister of Finance may request that the Bank of Japan conduct the business necessary to maintain an orderly financial system, including provision of loans, when it is believed to be especially necessary for the maintenance of an orderly financial system including the case where it is judged, after consultation pursuant to the provisions of Article 57-2 of the Banking Act (Law No. 59 of 1981) and other relevant laws and regulations that a serious problem in an orderly financial system may arise.
2. At the request of the Prime Minister and the Minister of Finance as prescribed by the preceding Paragraph, the Bank may conduct business necessary to maintain an orderly financial system, including provision of loans under special conditions, in addition to the business prescribed by Article 33, Paragraph 1.
Kyrgyz RepublicLaw of the Kyrgyz Republic on the National Bank of the Kyrgyz Republic of August 6, 1997
Chapter I—General Provisions
Article 4—Functions of the Bank of Kyrgyzstan
[…]
(4) to be a creditor of last resort for banks in conformity with the present Law;
Chapter VII—Relations Between the Bank of Kyrgystan and Other Banks
Article 28. Loans Extended to Other Banks
3. In emergency cases, to maintain the banking system intact, the Bank of Kyrgyzstan may extend an unsecured loan or a loan secured by other types of assets, on terms as specified by the Board of the Bank of Kyrgyzstan.
An emergency loan may be extended for a period of six months. This period may be prolonged by decision of the Board of the Bank of Kyrgyzstan. During the term of such loans, the Bank of Kyrgyzstan shall apply special borrower treatment as specified in the rules and regulations of the Bank of Kyrgystan.
LithuaniaLaw on the Bank of Lithuania, Law No. 1-678 of December 1, 1994 (last amendment: March 13, 2001)
Chapter IV—Monetary Policy of the Bank of Lithuania
Article 27—Loans of the Bank of Lithuania
1. The Bank of Lithuania, pursuant to the procedure, terms and conditions laid down by the Bank, shall have the right to make loans in Litas to credit institutions registered in the Republic of Lithuania that have their accounts at the Bank of Lithuania.
2. The loans made by the Bank of Lithuania shall be secured by the pledge of the following assets of a credit institution which obtains the loan:
(1) debt securities issued by the Government or the Bank of Lithuania;
(2) foreign currency or precious metals; and
(3) bills of exchange, other debt instruments and real estate which satisfy the terms established by the Bank of Lithuania.
3. Loans may also be secured by a state guarantee, or a surety or guarantee of a credit institution.
MadagascarCharter of the Central Bank of Madagascar, Law No. 94-04 of June 10, 1994
Chapter IV—Central Bank Assistance to Banks and Financial Institutions
Article 34.
In the event of temporary liquidity problems experienced by a bank or financial institution in connection with the implementation of a recovery plan acceptable to the Bank and Financial Institutions Control Commission and the Central Bank, the latter may grant such institution a special advance on the conditions adopted by the Board.
Chapter V—Provisions Common to Chapters II, III, IV, and V
Article 38.
The Central Bank may make its assistance contingent on the submission of any documentation it deems necessary. It may, as appropriate, require that any real or personal guarantees be provided.
New ZealandReserve Bank of New Zealand Act of 1989 (last amendment: Reserve Bank of New Zealand Amendment Act 1999)
Part II—Functions and Powers of Reserve Bank Other Functions and Powers
31. Bank to act as lender of last resort—the Bank shall, if the Bank considers it necessary for the purpose of maintaining the soundness of the financial system, act as lender of last resort for the financial system.
Part V—Registration of Banks and Prudential Supervision of Registered Banks
68. Exercise of powers under this Part—[Cf. 1964, No. 134, s. 38J; 1986, No. 131, s. 10] The powers conferred on the Governor-General, the Minister, and the Bank by this Part of this Act shall be exercised for the purposes of

(a) Promoting the maintenance of a sound and efficient financial system; or

(b) Avoiding significant damage to the financial system that could result from the failure of a registered bank.
NorwayAct on Norges Bank and the Monetary System of May 24, 1985 (last amendment: June 18, 1999)
Chapter IV—Role in the Credit Market
Section 19. Extension of credit to banks
When warranted by special circumstances, the Bank may grant credit on special terms.
PortugalBanco de Portugal Organic Law, Law No. 5/98 of January 31, 1998 (last amendment: April 17, 2001)
Chapter IV—Central Bank Functions
SECTION I—General Provisions
Article 12
Without prejudice to the requirements derived from its participation in the ESCB it shall be particularly incumbent upon the Bank to:
[…]
(c) Provide for the stability of the domestic financial system, performing for the purpose the function of lender of last resort;
[…]
Chapter IV—Central Bank functions
SECTION VI—Operations of the Bank
Article 24
1. In order to meet the objectives and to perform the ESCB tasks, the Bank may carry out any operations justified by virtue of its capacity as central bank, namely the following:
[…]
(c) To grant loans or to open current account credits to credit institutions and financial companies, in such forms as the Bank may deem appropriate, and duly secured by collateral;
[…]
RomaniaLaw on the Statute of the National Bank of Romania of May 26, 1998 (last amendment: Law No. 156 of October 12, 1999)
Chapter V—Bank Supervision
Article 27. Protection Against System Risk
To limit risks in the banking and payments system, the National Bank of Romania may, in exceptional circumstances and on a case-by-case basis, grant loans to banks that are either unsecured, or secured with assets other than those provided for in Article 20.
SpainLaw of Autonomy of the Banco de España, Law 13/1994 of June 1, 1994 (last amendment: Law 12/1998 of April 28, 1998)
Chapter I—Nature and Legal Status
Article 4. Economic and Budgetary Treatment
[…]
The government, upon proposal by the Economy and Finance Minister, shall have the authority to approve the annual balance sheet and accounts of the Bank, which will be sent to Parliament for informational purposes. Without prejudice to the terms of article 27 of the Statutes of the ESCB, the Banco de España shall be subject to external auditing by the Tribunal de Cuenta [National Accounts Office] under the terms of Organic Law 2/1982, of May 12, on the Tribunal de Cuentas. The report accompanying the annual balance sheet and accounts shall give further detail on different operations or items on the balance sheet, according to their characteristics. In particular, the Bank’s contributions to the Deposit Guarantee Funds shall be detailed, as will any loans or other operations made for the benefit of any other institution or person on nonmarket conditions, or which in any other way implied loss of profit or losses for the Bank. In such cases the amount of such loss of profit or losses shall be specified.
SwedenThe Sveriges Riksbank Act (1988:1385)—as amended to apply from January 1, 1999
Chapter VI—Monetary Policy and the Payment System
Article 8
In exceptional circumstances, the Riksbank may, with the end of supporting liquidity, grant credits or provide gurantees on special terms to banking institutions and Swedish companies that are under the supervision of the Financial Supervisory Authority.
SwitzerlandNational Bank Law of December 23, 1953 (last amendment: May 1, 2000)
1. The Individual Organs: (b) The Bank Council
Article 43
(1) In addition to the general supervision of the progress and conduct of the Bank’s business the Bank Council shall deal with the following:
[…]
12. establishing the credit limits of customers if the amounts exceed, according to the regulations, the powers of the Bank Committee and the Governing Board.
West African Monetary UnionStatutes of the Central Bank of West African States

Central Bank Operations

Section V—Relations of the Central Bank with Banks and Financial Institutions of the West African Monetary Union

Article 23
The Central Bank may grant assistance only to the West African Development Bank, other joint financing institutions set up pursuant to Article 23 of the Treaty Establishing the West African Monetary Union, and banks and financial institutions authorized to operate in the States of the Union, subject to the conditions of banking legislation and credit regulations, determined in accordance with Article 22 of said Treaty.
ZambiaThe Bank of Zambia Act
Part VI—Relations with Banks and Financial Institutions 42. Accounts for banks and other financial institutions
[…]
(3) Where the bank is of the opinion that an advance is necessary in order to:
(a) meet liquidity requirements; or
(b) forestall insolvency to safeguard the financial system; of a holder of any account operated in accordance with subsection 1 (1) the Bank may make an unsecured advance or an advance secured by such assets, and on such terms and conditions as the Board may determine.

Source: Central Bank Legislation Database, Monetary and Exchange Affairs Dept., IMF (5/9/02)

Source: Central Bank Legislation Database, Monetary and Exchange Affairs Dept., IMF (5/9/02)

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