New wording of the CNB Provision stipulating the minimum volume of liquid funds and the conditions for the creation of minimum required reserves

At its regular meeting on 4 September 2003, the CNB Bank Board approved a new wording of the CNB Provision stipulating the minimum amount of liquid funds and the conditions for the creation of minimum required reserves. This amended regulation, which enters into force on 6 November 2003, includes the following two methodological changes to the reserve requirement:

• The inclusion of balances on cash deposit and withdrawal accounts in the reserve requirement. Under the new Provision, the reserve requirement will, in addition to the existing end-of-day balance on the clearing account, include the end-of-day balance on the cash deposit and withdrawal account. This means that daily compliance with the reserve requirement will be based on the sum of the balances on both these accounts. The inclusion of balances on the cash deposit and withdrawal accounts in the reserve requirement also means that the remuneration of these two accounts will be unified. In the new system, all the funds of commercial banks on accounts with the CNB will therefore be remunerated at the CNB's two-week repo rate. With regard to the existing remuneration of cash deposit and withdrawal accounts, which stands at 0.5%, the interest rate will be more advantageous to commercial banks. At the same time, this methodological change will allow commercial banks to reduce the overall amount of funds they have tied up at the CNB, thereby increasing the possibility of those funds being invested effectively on the financial market.
• The maintenance period is to change from fixed calendar days to fixed days of the week. The maintenance period always starts on the first Thursday in the month and ends on the Wednesday before the first Thursday of the following month. Experience has shown that setting the start and end of the maintenance period to fixed days of the week is more convenient for liquidity management. The start/end of each reserve requirement cycle does not fall on a weekend, hence reducing any undesirable build-up of free reserves. Commercial banks are thus able to manage daily liquidity more efficiently and to invest all their free reserves (above the required amount) on the market and thus achieve higher returns. This amendment also partly reflects the methodological changes being prepared by the ECB for next year.

• The CNB Provision stipulating the minimum volume of liquid funds and the conditions for the creation of minimum required reserves will be published in the Czech National Bank Bulletin.

  Alice Frisaufova, CNB spokesperson