Andorra Banks Gain Access to €50B ECB Liquidity via New EUREP Facility

Andorra's Financial Authority (AFA) presented bills on Monday to amend its governing law and international reserves rules, enabling access to the European Central Bank's Eurosystem Repo Facility for Central Banks (EUREP) and providing Andorran banks with liquidity support up to €50 billion in extreme cases.

The legislative changes, now awaiting General Council approval, empower the AFA to handle collateral from banks rather than relying solely on state reserves. This allows it to sign agreements with Eurosystem institutions, open accounts, and exchange high-quality assets—such as European sovereign bonds—for euros. Repayment terms and interest rates would apply as needed, with banks assuming the risks through their own balance sheets.

Finance Minister Ramon Lladós described the move as a response to years of reforms, including IMF membership and reserve accumulation. "We are no longer limited by the country's size, but by how solid the banks' balance sheets are," he said during a press conference. He added that Andorra's banks, known for conservative practices due to lacking a national central bank, would retain reserves while gaining the ECB's "firepower" for urgent liquidity.

The €50 billion ceiling represents the facility's maximum capacity, not an Andorra-specific allocation; actual access depends on collateral quality. This replaces a €35 million ECB credit line from the Covid period and supplements €250 million in reserves held with the central banks of Spain, France, and the Netherlands, plus potential €200 million from the IMF. A national lender-of-last-resort mechanism, in place since 2022 and never used, remains unaffected.

Lladós emphasised that the state incurs no risk, as guarantees come directly from banks. While EUREP does not make the ECB Andorra's formal lender of last resort—given the Principat's non-eurozone status—it operates "practically identical" in practice. The ECB solidified EUREP as a permanent tool this year for non-eurozone monetary authorities, with withdrawals starting in October.

Rating agencies have praised the step for bolstering crisis resilience without EU membership or a central bank, enhancing competitiveness amid Andorra's €4.8 billion GDP.