“Lending of Last Resort (LLR) to Credit Institutions in the Euro Area under the Emergency Liquidity Assistanvce (ELA) Mechanism: Status Quo an Proposed Amendments” by Christos Gortsos was published on 25 November 2024 in the EBI Working Paper Series No. 185.

The prospect of, and then the actual launch on 1 January 1999 of the Economic and Monetary Union (EMU) in the European Union (EU) triggered a debate as to which central bank should operate as lender of last resort to solvent credit institutions in the euro area: the European Central Bank (ECB) or the national central banks (NCBs) which are members of the Eurosystem. This dilemma was solved with the establishment of the Emergency Liquidity Assistance (ELA) mechanism, according to which these NCBs continue to act as lenders of last resort for the credit institutions established in the territory of their jurisdiction, unless the Governing Council of the ECB takes a formal decision that this would interfere with the objectives and tasks of the European System of Central Banks (ESCB). In discussing this issue, this article is structured in four Sections:

Section 1 sets the scene, briefly overviewing the key attributes of last-resort lending (LLR), further discussing the above dilemma, and prescribing the limitations set out by primary EU law in respect of the provision of LLR to credit institutions established in the euro area by the ECB.  The procedural rules governing the ELA mechanism in the euro area, which are currently set out in the ECB Agreement of 7 September 2024 – an instrument of soft law, are systematically presented in Section 2. The focus in Section 3 turns to the case-law of the European Court of Justice (CJEU) in relation to ECB documents on the granting of ELA to credit institutions within the Eurosystem, and (in particular) the three judgments of the General Court delivered in applications brought before it. In concluding, Section 4 raises the argument that, upon the establishment and operationalisation, as from 4 November 2014, of the Single Supervisory Mechanism (SSM) in the euro area (and in other Member States that may wish to join this mechanism), it is both advisable and legally feasible for the ECB to become the lender of last resort for (solvent) credit institutions directly supervised by it within the SSM.

Read the entire article here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5032595 or https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5032595.