Bank of Albania and the postponement of the agreement with the European Central Bank

All Central Banks (CBs) hope for the best, but not all fully prepare for the worst. This is a conclusion of the European Central Bank (ECB), which includes on this point of view also the Bank of Albania among the central banks of Hungary, Croatia, North Macedonia, Serbia, and San Marino.

According to the ECB, although CBs assess risks systematically, they are not yet able to understand the full extent, as most do not actively collect counterparty and asset-level data. On the other hand, all CB boards are not yet aware of how these risks will develop over time, what exact level of risk the Bank can accept and what action it will take to curb excess risk.

At the end of December 2022, the ECB extended the existing lines of REPOs [1]

and exchanges with non-euro zone central banks until January 15, 2024. This is the third time.
Initially, this Agreement was signed in 2020 for the pandemic [2], then the ECB in 2021 decided to temporarily extend the term of liquidity lines in euros by nine months, until March 2022 [3] for other market risks and uncertainties and already on December 16, 2022 [4] this postponement also includes market risks from the war in Ukraine and its impacts.

EUREP is a preventive, time-limited structure. It was initially introduced as part of the ECB’s crisis response measures to address the negative impact of the COVID-19 pandemic. In general, these arrangements aim to facilitate a smooth transmission of monetary policy in the euro area for the benefit of all euro area citizens.

The liquidity provided through this agreement will be made available to the Albanian banking system through the Bank of Albania. This instrument is a reserve protection tool, which can be used in case there is a normal malfunction of the market due to any unexpected shocks, like those we went through, and which are still present as risks.

The provision of euro liquidity to central banks outside the euro area aims to ease euro liquidity needs in those countries where there is a stressed market environment. Potential beneficiaries are banks that need funding in euros but are unable to obtain it in the market or can only do so at prohibitive prices.

Normally, this money, which can also be used as credit to the government, consists of advances or overdrafts on the government’s account at the central bank and aims to compensate for seasonal shortfalls in government revenue. The legislation usually places a ceiling on the amount of the loan and requires the government to repay it within the same fiscal year.

But, regarding the quality transparency and the way they perform, it is still necessary for BSH to be more present for the public by keeping full reports on their impact and the level of security they have guaranteed so far.

Currently, we do not have information regarding the decisions regarding the framework of policies and commitments that have been taken and the level of their implementation until the end of this year.

[1] The REPO agreement is a form of collateralized borrowing. Through it, the Bank of Albania temporarily sells to the ECB the titles it has, undertaking to buy them at a second time, according to the conditions previously agreed with the ECB. These swap lines and bilateral REPOs have been established since 2020 to provide euro liquidity to financial institutions via non-euro area central banks in view of the pandemic and heightened geopolitical tensions caused by the Russian occupation of Ukraine.[2]https://www.bankofalbania.org/Shtypi/Njoftimet_per_shtyp/BQE_dhe_Banka_e_Shqiperise_kane_dakordesuar_per_nje_linje_te_marreveshjeve_te_riblerjes_Repo_per_te_siguruar_likuiditet_ne_euro.html
https://www.bankofalbania.org/Shtypi/Njoftimet_per_shtyp/?crd=27205
[3]https://www.bankofalbania.org/Shtypi/Njoftimet_per_shtyp/Njoftimi_per_shtyp_i_BQE_BQE_zgjat_afatin_e_linjave_te_likuiditetit_ne_Euro_me_bankat_qendrore_te_shteteve_joanetare_te_Eurozones_1.html
[4]https://www.bankofalbania.org/Shtypi/Njoftimet_per_shtyp/Banka_e_Shqiperise_dakordeson_me_Banken_Qendrore_Evropiane_zgjatjen_e_afatit_te_linjes_se_likuiditetit_ne_euro_deri_ne_muajin_janar_2024.html