The AFA and the Government present the draft law on creation of international reserves and access of the financial system to emergency liquidity assistance

20/09/2022

The Managing Director of the Andorran Financial Authority, David Cerqueda, held the press conference organized on Monday 19 September by the Minister of Finance, Eric Jover, to present the draft law that will strengthen the mechanism of international reserves and create the lender of last resort of the financial sector.

In line with international practice and the International Monetary Fund recommendations, with the aim of increasing the resilience of the Principality to possible crisis situations and containing its impact on the entire financial system, the international reserves that currently have 140 million euros in special drawing rights and 100 million euros deposited to the Bank of Spain are expected to increase by 100 million. Thus, with the objective of equalizing reserves to 12% of GDP by 2021, the AFA, which will be responsible of the management and the custody of these reserves, has been working in the negotiations with the Bank of France and with the Central Bank of the Netherlands. The Andorran emergency liquidity assistance mechanism has taken as reference the "ELA - Emergency Liquidity Assistance" of the European Central Bank, a protocol used and consolidated among the central banks of the Eurozone.

The bill provides that the endowment of international reserves will be part of the State treasury. The contributions must be included in the annual budgetary framework and will come from the general administration and public entities. It will be managed by a management committee to ensure best international practices, the necessary prudential and liquidity criteria and the maximum possible efficiency.

Without losing sight of the fact that the main objective of liquidity facilities is to avoid systemic instability of the entire financial system, which in the case of Andorra increases in a context of banking concentration, the emergency liquidity assistance has to respond to an exceptional and prompt need of an entity, which has to be viable and solvent and has previously exhausted any other possibility of obtaining liquidity. In addition, the bank requesting the liquidity facility will have to provide guarantees with a value significantly higher than the amount requested. The AFA will be responsible for assessing the request for liquidity and resolving, at its discretion and based on technical criteria and stability of the financial system, the granting of up to 200 million euros. In the event that a higher amount is required, the express approval of the Government will be necessary.