Submitted to: Kiran maam Submitted by: Name

Jyoti baliya Sumaiyya shiekh Priti singh

Roll no.
01 12 13

Acknowledgment

We are highly obliged to exhibit a blend of us sincere & hardly to KIRAN MAAM for her valuable guidance throughout the project.

We had a lot to learn some sphere of experience and some of knowledge the dos and donts the darker sides and the lighter once.

Index

European Central Bank

Headquarters Coordinates Established President Central bank of Currency ISO 4217 Code Reserves Base borrowing rate Base deposit rate Website Preceded by

Frankfurt am Main, Hesse, Germany 50.1095N 8.6740E 1 June 1998 Mario Draghi Eurozone Euro EUR 526 billion euro in total 1.00% 0.25% www.ecb.int 17 national banks

Introduction:

The European Central Bank is the institution of the European Union (EU) that administers the monetary policy of the 17 EU Eurozone member states. It is thus one of the world's most important central banks. The bank was established by the Treaty of Amsterdam in 1998, and is headquartered in Frankfurt, Germany. The current President of the ECB is Mario Draghi, former governor of the Bank of Italy. The primary objective of the European Central Bank is to maintain price stability within the Eurozone, which is the same as keeping inflation low. The Governing Council defined price stability as inflation (Harmonised Index of Consumer Prices) of around 2%. Unlike, for example, the United States Federal Reserve Bank, the ECB has only one primary objective with other objectives subordinate to it. The key tasks of the ECB are to define and implement the monetary policy for the Eurozone, to conduct foreign exchange operations, to take care of the foreign reserves of the European System of Central Banks and promote smooth operation of the financial market infrastructure under the Target payments system and the technical platform (currently being developed) for settlement of securities in Europe (TARGET2 Securities). Furthermore, it has the exclusive right to authorise the issuance of euro banknotes. Member states could issue euro coins, but the amount must be authorised by the ECB beforehand (upon the introduction of the euro, the ECB also had exclusive right to issue coins). On 9 May 2010, the 27 member states of the European Union agreed to incorporate the European Financial Stability Facility. The EFSFs mandate is to safeguard financial stability in Europe by providing financial assistance to Eurozone Member States. The bank must also co-operate within the EU and internationally with third bodies and entities. Finally it contributes to maintaining a stable financial system and monitoring the banking sector. The latter can be seen, for example, in the bank's intervention during the 2007 credit crisis when it loaned billions of euros to banks to stabilise the financial system. Although the ECB is governed by European law directly and thus not by corporate law applying to private law companies, its set-up resembles that of a corporation in the sense that the ECB has shareholders and stock capital. Its capital is five billion euro which is held by the national central banks of the member states as shareholders. The initial capital allocation key was determined in 1998 on the basis of the states' population and GDP, but the key is adjustable. Shares in the ECB are not transferable and cannot be used as collateral. Throughout 2011 various member states of the European Union showed themselves to be increasingly unable to meet financial commitments. At its heart, the crisis of the European currency unit or ECU is similar to almost any other

financial crisis, including the crisis of 2008. Key concepts to understanding the crisis include collateral, assets, and liabilities. The bank is based in Frankfurt, the largest financial centre in the Eurozone (although not the largest in the European Union). Its location in the city is fixed by the Amsterdam Treaty along with other major institutions. In the city, the bank currently occupies Frankfurt's Eurotower until its purpose-built headquarters are built. The owners and shareholders of the European Central Bank are the central banks of the 27 member states of the EU.

History
The European Central Bank is the de facto successor of the European Monetary Institute (EMI) The EMI was established at the start of the second stage of the EU's Economic and Monetary Union (EMU) to handle the transitional issues of states adopting the euro and prepare for the creation of the ECB and European System of Central Banks (ESCB). The EMI itself took over from the earlier European Monetary Co-operation Fund (EMCF). Wim Duisenberg, first President of the ECB. The ECB formally replaced the EMI on 1 June 1998 by virtue of the Treaty on European Union (TEU, Treaty of Maastricht), however it did not exercise its full powers until the introduction of the euro on 1 January 1999, signalling the third stage of EMU. The bank was the final institution needed for EMU, as outlined by the EMU reports of Pierre Werner and President Jacques Delors. It was established on 1 June 1998. The first President of the Bank was Wim Duisenberg, the former president of the Dutch central bank and the European Monetary Institute.[3] While Duisenberg had been the head of the EMI (taking over from Alexandre Lamfalussy of Belgium) just before the ECB came into existence, the French government wanted Jean-Claude Trichet, former head of the French central bank, to be the ECB's first president. The French argued that since the ECB was to be located in Germany, its President should be French. This was opposed by the German, Dutch and Belgian governments who saw Duisenberg as a guarantor of a strong euro. Tensions were abated by a gentleman's agreement in which Duisenberg would stand down before

the end of his mandate, to be replaced by Trichet, which occurred in November 2003. There had also been tension over the ECB's Executive Board, with the United Kingdom demanding a seat even though it had not joined the Single Currency. Under pressure from France, three seats were assigned to the largest members, France, Germany, and Italy; Spain also demanded and obtained a seat. Despite such a system of appointment the board asserted its independence early on in resisting calls for interest rates and future candidates to it.When the ECB was created, it covered a Eurozone of eleven members. Since then, Greece joined in January 2001, Slovenia in January 2007, Cyprus and Malta in January 2008, Slovakia in January 2009, and Estonia in January 2011, enlarging the bank's scope and the membership of its Governing Council.On 1 December 2009, the Treaty of Lisbon entered into force, ECB according to the article 13 of TEU, gained official status of an EU institution. In April 2011, the ECB raised interest rates for the first time since 2008 from 1% to 1.25%,with a further increase to 1.50% in July 2011.

Future:
When German appointee to the Governing Council and Executive board, Jrgen Stark, resigned in protest of the ECB's bond buying programme, Financial Times Deutschland called it "the end of the ECB as we know it" referring to its perceived "hawkish" stance on inflation and its historical Bundesbank influence.

Powers and objectives:

Euro banknotes The primary objective of the European Central Bank is to maintain price stability within the Eurozone, which is the same as keeping inflation low. The Governing

Council in October 1998defined price stability as inflation of around 2%, a yearon-year increase in the Harmonised Index of Consumer Prices (HICP) for the euro area of below 2% and added that price stability was to be maintained over the medium term. (Harmonised Index of Consumer Prices) Unlike for example the United States Federal Reserve Bank, the ECB has only one primary objective with other objectives subordinate to it. The Governing Council confirmed this definition in May 2003 following a thorough evaluation of the ECBs monetary policy strategy. On that occasion, the Governing Council clarified that in the pursuit of price stability, it aims to maintain inflation rates below but close to 2% over the medium term. All lending to credit institutions must be collateralised as required by Article 18 of the Statute of the ESCB.

Authorities:
The key tasks of the ECB are to define and implement the monetary policy for the Eurozone, to conduct foreign exchange operations, to take care of the foreign reserves of the European System of Central Banks and promote smooth operation of the financial market infrastructure under the Target payments system and being currently developed technical platform for settlement of securities in Europe (TARGET2 Securities). Furthermore, it has the exclusive right to authorise the issuance of euro banknotes. Member states can issue euro coins but the amount must be authorised by the ECB beforehand (upon the introduction of the euro, the ECB also had exclusive right to issue coins).In U.S. style central banking, liquidity is furnished to the economy primarily through the purchase of Treasury bonds by the Federal Reserve Bank. The Eurosystem uses a different method. There are about 1500 eligible banks which may bid for short term repo contracts of two weeks to three months duration. The banks in effect borrow cash and must pay it back; the short durations allow interest rates to be adjusted continually. When the repo notes come due the participating banks bid again. An increase in the quantity of notes offered at auction allows an increase in liquidity in the economy. A decrease has the contrary effect. The contracts are carried on the asset side of the European Central Bank's balance sheet and the resulting deposits in member banks are carried as a liability. In lay terms, the liability of the central bank is money, and an increase in deposits in member banks, carried as a liability by the central bank, means that more money has been put into the economy.

European Financial Stability Facility:

On 9 May 2010, the 27 member states of the European Union agreed to incorporate the European Financial Stability Facility.The EFSFs mandate is to safeguard financial stability in Europe by providing financial assistance to Eurozone Member States.

The European Financial Stability Facility is authorised to use the following instruments linked to appropriate conditionality: To provide loans to countries in financial difficulties, like in the event of Greece. To intervene in the primary and secondary debt markets. Intervention in the secondary debt market will be only on the basis of an ECB analysis recognising the existence of exceptional financial market circumstances and risks to financial stability. Act on the basis of a precautionary programme. Finance recapitalisations of financial institutions through loans to governments.The EFSF is backed by guarantee commitments from the Eurozone Member States for a total of 780 billion and has a lending capacity of 440 billion. It has been assigned the best possible credit rating (AAA by Standard & Poors and Fitch Ratings, Aaa by Moodys)

Organization:
Although the ECB is governed by European law directly and thus not by corporate law applying to private law companies, its set-up resembles that of a corporation in the sense that the ECB has shareholders and stock capital. Its capital is five billion euros which is held by the national central banks of the member states as shareholders. The initial capital allocation key was determined in 1998 on the basis of the states' population and GDP, but the key is adjustable. Shares in the ECB are not transferable and cannot be used as collateral. European Union

This article is part of the series: Politics and government of the European Union Parliament Council of Ministers European Council Commission Court of Justice

Other institutions Policies and issues Foreign relations Elections Law All National Central Banks (NCBs) that own a share of the ECB capital stock as of 1 January 2011 are listed below. Non-Euro area NCBs are required to pay up only a very small percentage of their subscribed capital, which accounts for the different magnitudes of Euro area and Non-Euro area total paid-up capital.[36] NCB Nationale Bank van Belgi / Banque Nationale de Belgique Deutsche Bundesbank Eesti Pank Central Bank of Ireland (Bank of Greece) Banco de Espaa Banque de France Banca d'Italia K / Kbrs Merkez Bankas (Central Bank of Cyprus) Banque centrale du Luxembourg Bank entrali ta' Malta De Nederlandsche Bank sterreichische Nationalbank Banco de Portugal Banka Slovenije Nrodn banka Slovenska Suomen Pankki - Finlands Bank Total Non-Euro area: (Bulgarian National Bank) Capital Key (%) 2.4256 18.9373 0.1790 1.1107 1.9649 8.3040 14.2212 12.4966 0.1369 0.1747 0.0632 3.9882 1.9417 1.7504 0.3288 0.6934 1.2539 69.9705 0.8686 Paid-up Capital () 180,157,051.35 1,406,533,694.10 13,294,901.14 82,495,232.91 145,939,392.39 616,764,575.51 1,056,253,899.48 928,162,354.81 10,167,999.81 12,975,526.42 4,694,065.65 296,216,339.12 144,216,254.37 130,007,792.98 24,421,025.10 51,501,030.43 93,131,153.81 5,196,932,289.36 3,505,013.50

esk nrodn banka Danmarks Nationalbank Latvijas Banka Lietuvos bankas Magyar Nemzeti Bank Narodowy Bank Polski Banca Naional a Romniei Sveriges Riksbank Bank of England Total

1.4472 1.4835 0.2837 0.4256 1.3856 4.8954 2.4645 2.2582 14.5172 30.0295

5,839,806.06 5,986,285.44 1,144,798.91 1,717,400.12 5,591,234.99 19,754,136.66 9,944,860.44 9,112,389.47 58,580,453.65 121,176,379.25

European sovereign debt crisis:

From late 2009, fears of a sovereign debt crisis developed among fiscally conservative investors concerning some European states, with the situation becoming particularly tense in early 2010. This included euro zone members Greece, Ireland and Portugal and also some EU countries outside the area. Iceland, the country which experienced the largest crisis in 2008 when its entire international banking system collapsed has emerged less affected by the sovereign debt crisis as the government was unable to bail the banks out. In the EU, especially in countries where sovereign debts have increased sharply due to bank bailouts, a crisis of confidence has emerged with the widening of bond yield spreads and risk insurance on credit default swaps between these countries and other EU members, most importantly Germany. To be included in the eurozone, the countries had to fulfill certain convergence criteria, but the meaningfulness of such criteria were diminished by the fact they have not been applied to different countries with the same strictness.

Causes:
The principal monetary policy tool of the European central bank is collateralized borrowing or repo agreements. These tools are also used by the United States Federal Reserve Bank, but the Fed does more direct purchasing of financial assets than its European counterpart. The collateral used by the ECB is typically high quality public and private sector debt. The criteria for determining "high quality" for public debt have been preconditions for membership in the European Union: total debt must not be too large in relation to Gross Domestic Product, for example, and deficits in any given year must not become too large. Though these criteria are fairly simple, a number of accounting techniques may hide the underlying reality of fiscal solvencyor the lack of same. In central banking, the privileged status of the central bank is that it can make as much money as it deems needed. In the United States Federal Reserve Bank, the Federal Reserve buys assets: typically,

bonds issued by the Federal government. There is no limit on the bonds that it can buy and one of the tools at its disposal in a financial crisis is take such extraordinary measures as the purchase of large amounts of assets such as commercial paper. The purpose of such operations is to ensure that adequate liquidity is available for functioning of the financial system.

Response to the crisis:

The first round of austerity in 2010 failed to stop Greece's rising debt, which is expected to go up by 10% in 2011. There are a variety of possible responses to the problem of bad debts in a banking system. One is to induce debtors to make a greater effort to make good on their debt. With public debt this usually means getting governments to maintain debt

payments while cutting back on other forms of expenditure. Such policies often involve cutting back on popular social programs. Stringent policies with regard to social expenditures and employment in the state sector have led to riots and political protests in Greece. Another response is to shift losses from the central bank to private investors who are asked to "share the pain" of partial defaults that take the form of rescheduling debt payments. However, if the debt rescheduling causes losses on loans held by European banks, it weakens the private banking system, which then puts pressure on the central bank to come to the aid of those banks. Private sector bond holders are an integral part of the public and private banking system. Another possible response is for wealthy member countries to guarantee or purchase the debt of countries that have defaulted or are likely to default. This alternative requires that the tax revenues and credit of the wealthy member countries be used to refinance the previous borrowing of the weaker member countries, and is politically controversial.Reluctance in Germany to take on the burden of financing or guaranteeing the debts of weaker countries has led to public reports that some elites in Germany would prefer to see Greece, Portugal, and even Italy leave the Euro zone "temporarily." Until recently, Greek Euro zone exit was rejected by German Chancellor Angela Merkel. The German government's current position is, to keep Greece within the euro zone, but not at any cost. If the worst comes to the worst, priority will be given to the euro's stability. Bond purchase:

The ECB could, and through the late summer of 2011 did, purchase bonds issued by the weaker states even though it assumes, in doing so, the risk of a deteriorating balance sheet. ECB buying focused primarily on Spanish and Italian debt. Certain techniques can minimize the impact. Purchases of Italian bonds by the central bank, for example, were intended to dampen international speculation and strengthen portfolios in the private sector and also the central bank. The assumption is that speculative activity will decrease over time and the value of the assets increase. Such a move is similar to what the U.S. federal reserve did in

buying subprime mortgages in the crisis of 2008, except in the European crisis, the purchases are of member state debt. The risk of such a move is that it could diminish the value of the currency. On the other hand, certain financial techniques can reduce the impact of such purchases on the currency. One is sterilization, wherein highly valued assets are sold at the same time that the weaker assets are purchased, which keeps the money supply neutral.Another technique is simply to accept the bad assets as long-term collateral (as opposed to short-term repo swaps) to be held until their market value stabilizes. This would imply, as a quid pro quo, adjustments in taxation and expenditure in the economies of the weaker states to improve the perceived value of the assets.

Loans to banks: On December 21, 2011 the bank instituted a massive program of making lowinterest loans with a term of 3 years and 1% interest to European banks accepting loans from the portfolio of the banks as collateral. Loans totaling 489.2 billion euros ($640 billion) were announced. Outside observers were optimistic that this initiative would serve as the functional equivalent of monetary easing and avert collapse of the European banking system. The loans were not offered to European states, but government securities issued by European states would be acceptable collateral as would mortgage securities and other commercial paper that can be demonstrated to be secure. The program had been announced on December 8, 2011 but observers were surprised by the volume of the loans made when it was implemented. Foreign exchange operations:

On 22 September 2000, the ECB, together with the monetary authorities of the United States, Japan, the United Kingdom and Canada, initiated concerted

intervention in the foreign exchange markets; the ECB intervened again in early November 2000.

What it includes:
Commercial bank loans, buyers credit, suppliers credit, securitized instruments such as floating rate notes, fixed rate bonds etc., credit from official export credit agencies, commercial borrowings from the private sector window of multilateral financial institutions such as IFC, ADB, AFIC, CDC etc. and Investment by Foreign Institutional Investors (FIIs) in dedicated debt funds. The government has been streamlining and liberalising the ECB procedures in order to enable the Indian corporate to have greater access in the financial markets. The RBI has been empowered to regulate the ECBs. ECB provide additional sources of funds for the corporate and allows them to supplement the domestic available resources and take advantage of the lower interest rates prevailing in the international financial markets.

Purpose:
ECBs are being permitted by the government as an additional source of financing for expanding the existing capacity as well as for fresh investments. The policy of the government also seeks to emphasize the priority of investing in the infrastructure and core sectors such as Power, telecom, Railways, Roads, Urban infrastructure etc. Another priority being addressed is the need of capital for Small and Medium scale enterprises.

What is not included under ECB

s Investment made towards core capital of an organization viz. investment in equity shares convertible preference shares convertible debentures Instruments which are fully and mandatorily convertible into equity within aspecified time are to be reckoned as part of equity under the FDI Policy Equity capital Retained earnings of FDI companies Other direct capital (inter-corporate debt transactions between related entities)

Functions:
Since not all the EU states have joined the euro, the ESCB could not be used as the monetary authority of the eurozone. For this reason the Eurosystem (which excludes all the NCBs which have not adopted the euro) became the institution in

charge of those tasks which in principle had to be managed by the ESCB. In accordance with the treaty establishing the European Community and the Statute of the European System of Central Banks and of the European Central Bank, the primary objective of the Eurosystem is to maintain price stability (in other words control inflation). Without prejudice to this objective, the Eurosystem shall support the general economic policies in the Community and act in accordance with the principles of an open market economy. The basic tasks to be carried out by the Eurosystem are: to define and implement the monetary policy of the eurozone; to conduct foreign exchange operations; to hold and manage the official foreign reserves of the Member States; and to promote the smooth operation of payment systems. In addition, the Eurosystem contributes to the smooth conduct of policies pursued by the competent authorities relating to the prudential supervision of credit institutions and the stability of the financial system. The ECB has an advisory role vis--vis the Community and national authorities on matters which fall within its field of competence, particularly where Community or national legislation is concerned. Finally, in order to undertake the tasks of the ESCB, the ECB, assisted by the NCBs, has the task of collecting the necessary statistical information either from the competent national authorities or directly from economic agents.

Powers and objectives:

Euro banknotes

The primary objective of the European Central Bank is to maintain price stability within the Eurozone, which is the same as keeping inflation low. The Governing Council in October 1998[9] defined price stability as inflation of around 2%, a year-on-year increase in the Harmonised Index of Consumer Prices (HICP) for the euro area of below 2% and added that price stability was to be maintained over the medium term. (Harmonised Index of Consumer Prices)[10] Unlike for example the United States Federal Reserve Bank, the ECB has only one primary objective with other objectives subordinate to it. The Governing Council confirmed this definition in May 2003 following a thorough evaluation of the ECBs monetary policy strategy. On that occasion, the Governing Council clarified that in the pursuit of price stability, it aims to maintain inflation rates below but close to 2% over the medium term.[9] All lending to credit institutions must be collateralised as required by Article 18 of the Statute of the ESCB.[11] the benefits of price stability are substantial (see benefits of price stability). Maintaining stable prices on a sustained basis is a crucial pre-condition for increasing economic welfare and the growth potential of an economy . the natural role of monetary policy in the economy is to maintain price stability (see scope of monetary policy). Monetary policy can affect real activity only in the shorter term (see the transmission mechanism). But ultimately it can only influence the price level in the economy.

Modes of raising ECBs

ECB constitutes the foreign currency loans raised by residents from recognised lender. The ambit of ECB is wide. It recognizes simple form of credit as suppliers credit as well as sophisticated financial products as securitization instruments. Basically ECB suggests any kind of funding other than Equity (considered foreign direct investment) be it Bonds, Credit notes, Asset Backed Securities, Mortgage Backed Securities or anything of that nature, satisfying the norms of the ECB regulations. The different borrowings and loans that come under the ECB roof are: Commercial Bank Loans: These loans constitute the term loans taken by companies from banks outside India. Buyer's Credit: Buyer's credit is the credit availed by the importers of goods/services from overseas lenders such as Banks and Financial Institutions for payment of their Imports on the due date. This lending is usually based on the letter of Credit (a Bank Guarantee) issued by the importers bank, i.e., the importers bank acts as a broker between the Importer and the Overseas lender for arranging buyers credit by issuing its Letter of Comfort for a fee. Supplier's Credit

 Securitized instruments such as Floating Rate Notes (FRNs), Fixed Rate Bonds FRBs) , Syndicated Loans etc. Credit from official export credit agencies Commercial borrowings from the private sector window of multilateral financial institutions such as International Finance Corporation (Washington), ADB, AFIC, CDC, Loan from foreign collaborator/equity holder, etc and corporate/institutions with a good credit rating from internationally recognized credit rating agency Lines of Credit from foreign banks and financial institutions Financial Leases Import Loans Investment by Foreign Institutional Investors (FIIs) in dedicated debt funds External assistance, NRI deposits, short-term credit and Rupee debt Foreign Currency Convertible Bonds Non convertible or optionally convertible or partially convertible debentures.

Advantages of ECB:
Benefits to the borrower: Foreign currency funds: Companies need funds in foreign currencies for many purposes such as, paying to suppliers in other countries etc that may not be available in India. Cheaper Funds: The cost of funds borrowed from external sources at times works out to be cheaper as compared to the cost of Rupee funds. Diversification of investors base: Another advantage is the addition of more investors thus diversifying the investor base Satisfying Large requirements: The international market is a better option in case of large requirements, as the availability of the funds is huge when compared to domestic market. Corporate can raise ECBs from internationally recognised sources such as banks, export credit agencies, suppliers of equipment, foreign collaborators, foreign equity holders, international capital markets etc. Benefits to the economy: As can be seen from the policies formed to regulate the ECB, these borrowings have some apparent benefits for the economy. The government through these policies is trying to nourish 2 sectors:

 Infrastructure SME The policies do not require any approval for investment under a limit in these 2 sectors. Thus it is easy to acquire foreign loans for such enterprises. Apart from that, the low cost of funds in the global market provides the small and medium enterprises funds at low costs thus bringing in more money in these sectors. Benefits to the investor: ECB is for specific period, which can be as short as three years Fixed Return, usually the rates of interest are fixed The interest and the borrowed amount are repatriable No owners risk as in case of Equity Investment Also, we can see that Indias debt management policy has significantly improved over the years.Thisis reflected in various external debt indicators. The debt service ratio, which is the ratio of external debt to the GDP of the country and is an indicator of an economys debt servicing capability, has improved, dropping to 17.4 per cent in March 2005 as compared to 38.7 per cent in end-March, 1992.It is noteworthy to mention that debt owed to the International Monetary Fund (IMF) was fully extinguished by 2000-01.

Decisions-making bodies of the ECB

Jean-Claude Trichet, the second President of the European Central Bank. The Governing Council comprises the members of the Executive Board of the ECB and the governors of the NCBs of the euro area countries.

The Executive Board is responsible for the implementation of monetary policy defined by the Governing Council and the day-to-day running of the bank. In this it can issue decisions to national central banks and may also exercise powers delegated to it by the Governing Council. It is composed of the President of the Bank (currently Mario Draghi), a vice president (currently Vitor Constncio) and four other members. They are all appointed for non-renewable terms of eight years. They are appointed "from among persons of recognised standing and professional experience in monetary or banking matters by common accord of the governments of the Member States at the level of Heads of State or Government, on a recommendation from the Council, after it has consulted the European Parliament and the Governing Council of the ECB". The Executive Board normally meets every Tuesday. The General Council is a body dealing with transitional issues of euro adoption, for example fixing the exchange rates of currencies being replaced by the euro (continuing the tasks of the former EMI) It will continue to exist until all EU member states adopt the euro, at which point it will be dissolved It is composed of the President and Vice President together with the governors of all of the EU's national central banks.

Fulfilling the ECBs mission:

The ECBs mission is to keep inflation low and stable. To achieve this goal, it closely follows economic developments in the euro area and seeks to influence the state of the economy through its decision-making. The ECB has three bodies which take all the decisions in this respect: the Governing Council, the Executive Board, and the General Council. The General Council will exist only as long as there are EU Member States which have not yet adopted the euro as their currency. Both the decision-making procedures and the various tasks are specified in the Statute of the European System of Central Banks (ESCB Statute).

Centralised decision-making:
The ECB is the centre of decision-making in the Eurosystem. Thus, the Governing Council, the Executive Board and the General Council of the ECB each take all the decisions necessary to enable the Eurosystem and the ESCB to carry out their respective tasks. This includes the formulation of policies, such as the monetary policy for the euro area, but also how they should be implemented.

Principle of decentralisation:

The ESCB Statute does not specify who should implement the ECB's policies and decisions: the ECB itself or the national central banks. Article 12.1 states merely that the ECB should have recourse to the national central banks (NCBs), where possible and appropriate, to carry out operations. This principle of decentralisation should not be confused with the "principle of subsidiarity", as set out in Article 5 of the Treaty on European Union. Subsidiarity means that the need for centralisation must be proven conclusively before action at Union level can be taken. In Stage Three of Economic and Monetary Union, however, monetary policy is conducted exclusively at Union level - under the authority of the ECB's Governing Council. Therefore it is centralised by definition and does not need to be justified. Instead, it is for the ECB to evaluate the extent to which decentralised implementation is possible and appropriate.

Decentralised operations:
For the bulk of the Eurosystem's activities, there is indeed a division of labour guided by the principle of decentralisation. The NCBs perform almost all operational tasks of the Eurosystem. In particular, they carry out the monetary policy operations and, as agents of the ECB, most foreign exchange operations, provide payment and securities settlement facilities, and ensure the procurement, issue and post-issue handling of euro banknotes. They also collect statistics for the ECB, collaborate with the ECB on translation and the production of publications and contribute to economic analysis and research. By contrast, the ECB carries out few operations while it oversees all of them, in order to ensure that the operations of the Eurosystem are performed consistently by the euro area NCBs.

CONCLUSION
External Commercial Borrowings are increasingly becoming an important source of financing for the Indian companies. This can be attributed to the fact that Indian companies have increased their global footprint, thus producing the need of possessing foreign currency funds. Also, lower interest rates outside provide an opportunity to pick up funds at lower costs. But nothing comes without any perils. With the increase in External Commercial Borrowings by corporate Indias external debt increases and this has to be matched with growth of foreign exchange reserves in the country so as to maintain solvency. Also increase in ECB brings the risk of depreciation in rupee, which will lead to increased burden on the borrower as the value of the rupee depreciates. As the global markets tumbled in the recession, the borrowings from them were also impacted. The analysis shows a drop in ECBs during recession. Also, due to recession, we saw a significant impact on the reason ECB was taken by companies. There was a significant drop in ECBs taken for import of capital goods. The average lending period also saw an initial dip before stabilising. Lastly, we see the impact of the changes in policies announced by the RBI. As can be seen, for the period of Jul-08 to Jun-10, the RBI announced many policy changes, opening up the regulations and including more and more sectors. The markets correctly responded to these announcements and we see significant

impact on the ECB due to these policy changes.