M1 is the Eurosystem's narrow monetary aggregate and comprises currency in circulation outside the banking system and overnight deposits of non-banks held at monetary financial institutions in the euro area. It also includes overnight deposits denominated in foreign currencies held by euro area residents at monetary financial institutions in the euro area. However, M1 does not comprise deposits held at monetary financial institutions in the euro area which belong to non-residents.

M2 is the Eurosystem's intermediate monetary aggregate and comprises M1 plus deposits with an agreed maturity of up to and including two years, and deposits redeemable at notice of up to and including three months.

M3 is the Eurosystem's broad monetary aggregate and comprises M2 plus repurchase agreements, money market fund shares, and debt securities with a maturity of up to and including two years. M3 is a key indicator for the monetary analysis underlying the Eurosystem's monetary policy decisions.

The Maastricht Treaty (Treaty on European Union) was signed in 1992 and entered into force in 1993. It amended the Treaty establishing the European Community and established the European Union. In particular, it laid the foundations for economic and monetary union. The Maastricht Treaty has since been amended by the Treaty of Amsterdam (1997/1999), the Treaty of Nice (2001/2003) and the Treaty of Lisbon (2007/2009), which brought the provisions of the Maastricht Treaty into line with the prevailing circumstances but did not fundamentally change them.

The Macroeconomic Imbalance Procedure (MIP) is a surveillance mechanism that aims to prevent and correct macroeconomic imbalances in EU member states by identifying them early on. Macroeconomic imbalances include inter alia high current account deficits or excessive lending growth. Ten scorecard indicators are assessed for every EU member state. If the indicators exceed certain threshold values, the member state in question is subjected to an in-depth country review in order to assess the severity of the imbalances. Depending on the severity of any problematic imbalances identified, the country in question is recommended or obliged to initiate appropriate countermeasures. Countries may ultimately face financial penalties. The MIP is embedded in the European Semester.

Macroprudential policy is the overarching term for administrative and communication measures aimed at safeguarding financial stability. The idea behind macroprudential policy is to identify and assess systemic risk and act in a way that strengthens financial system resilience. As a preventive policy field, macroprudential policy operates throughout the financial system, covering all the areas that might be a source of risk to financial stability. The body that exists at the national level is the German Financial Stability Committee (G-FSC), which issues warnings and recommendations for Germany. Competent national public sector entities must either comply with these warnings and recommendations or explain their reasons for non-compliance. Besides warnings and recommendations, there are further macroprudential measures designed to strengthen financial system resilience, for instance, macroprudential capital requirements for systemically important banks and the countercyclical capital buffer. Measures, which reduce systemic risk encroach more on how the financial institutions concerned run their businesses. For example, they push financial institutions to meet certain lending standards. Macroprudential policy, with its mandate to influence the financial system as a whole and keep it stable, supplements microprudential supervision, which assesses the situation at the level of individual banks, insurers and other financial system actors.

The macroprudential policy cycle covers three stages of macroprudential policy: (i) identification and assessment of risks to financial stability (macroprudential surveillance), (ii) communication of financial stability risk, and (iii) measures to safeguard financial stability and policy evaluation. The first stage, macroprudential surveillance, identifies and analyses emerging or existing macroeconomic imbalances as well as structural and cyclical vulnerabilities. Second, the resulting insights into financial stability risk are communicated in the Bundesbank’s annual Financial Stability Review and the report submitted by the German Financial Stability Committee (G-FSC) to the German parliament (Bundestag). Third, the G-FSC can issue warnings and recommendations to public sector entities to help safeguard financial stability. The macroeconomic impact and possible second-round effects of policy action are then analysed and assessed. This evaluation also forms the basis for potentially adjusting any existing macroprudential policy measures.

In the context of macroprudential policy, macroprudential supervision aims to strengthen financial system resilience and mitigate systemic risk, based on analyses in the field of macroprudential surveillance. Macroprudential supervision refers to the competent national and supranational authorities who are responsible for macroprudential policy. Macroprudential supervision is primarily a national responsibility and is closely coordinated at the European and global levels. In Germany, the Deutsche Bundesbank, the Federal Financial Supervisory Authority (BaFin) and the Federal Ministry of Finance work together on the Financial Stability Committee (G-FSC) to prevent risks to financial stability. At the European level, the European Central Bank (ECB) performs macroprudential surveillance functions, as does the European Systemic Risk Board (ESRB).

Macroprudential surveillance is the name given to activities performed by supervisory authorities to identify and assess risks to financial stability. This makes macroprudential surveillance an integral part of macroprudential policy. In Germany, the Financial Stability Act (Finanzstabilitätsgesetz) gives the Bundesbank in particular an important role to play in the field of macroprudential surveillance. The Bundesbank’s task is to identify and assess existing or emerging macroeconomic imbalances, the occurrence of which can increase both the likelihood of shocks and their impact. A high current account deficit or excessive lending are two examples of imbalances. Moreover, the Bundesbank aims to identify vulnerabilities in the financial system as early as possible. The idea is that supervisory authorities can use these analyses to gauge the implications of a confluence of shocks and vulnerabilities and the ability of the financial system to withstand its impact. Based on this assessment, supervisory authorities then consider whether and to what degree potential threats to financial stability might arise.

Main refinancing operation (MRO) is the term used by the Eurosystem to denote a weekly open market operation with a maturity of one week. The Eurosystem uses MROs to provide central bank money to banks in the form of short-term collateralised loans. MROs are usually conducted as standard tenders; the main refinancing rate resulting from these operations, together with the interest rates for the standing facilities, make up the Eurosystem's key policy rates. The weekly main refinancing operations are usually the Eurosystem’s most important monetary policy instrument, which it uses to steer interest rates and liquidity in the money market and to signal its monetary policy stance. Before the financial crisis, the Eurosystem provided banks with around three quarters of their required central bank liquidity through its main refinancing operations. Since the crisis, the quantitative focus has shifted to long-term refinancing operations.

In futures markets, the term "margin" refers to the collateral or an amount of money which both parties to a futures contract (futures traders) are required to deposit to protect a central counterparty (CCP) against loss. The term "initial margin" refers to the initial deposit to be made when opening a new futures position. If the market price of the underlying futures contract develops adversely for one of the two parties (traders), the "variation margin" is the additional amount which that trader has to deposit to ensure that future payment obligations can be honoured. Futures traders are required to provide the variation margin following a margin call. If the margin call is not met and the CCP does not receive the variation margin by the specified deadline, the CCP closes out the underlying transaction through a counter-transaction at the market conditions prevailing at that time.

The marginal interest rate is the Eurosystem's term for the lowest interest rate at which central bank money is allotted during a variable rate tender. Bids with lower interest rates are not met. If the demand for central bank money at the marginal interest rate exceeds supply, the allotment volume is divided among the bids by means of a scale-back.

A monetary policy instrument of the Eurosystem through which banks can obtain overnight liquidity from the central bank on their own initiative — against eligible collateral and at a predetermined interest rate. Banks can cover their short-term liquidity needs using the marginal lending facility. The interest rate for the marginal lending facility generally constitutes the upper limit for the overnight money market rate and is thus one of the Eurosystem's key interest rates.

Market risk (also known as market price risk) is defined as the risk of an investor experiencing losses if relevant market prices move in a way that is to their own detriment. This may trigger a change in market interest rates in the case of interest-bearing securities, market price fluctuations for securities in general and changes in exchange rates in the case of foreign currencies. Price movements cannot be reliably predicted and are in constant flux. This uncertainty may be reflected in both gains (opportunity) and losses (risk) for market participants. Banks and insurers therefore need to have an appropriate risk management system in place to manage and control the market risks that they take. In order to cover market risk, banks must meet capital requirements so as to maintain a capital buffer to offset any losses

Maturity transformation is the economic function that banks perform when they match up the differing maturity requirements of lenders and borrowers of capital. Lenders of capital, such as savers, generally prefer short-term investment vehicles like overnight money, while borrowers ideally need capital for a longer period to fund major investment projects and the like. It is all but impossible for lenders and borrowers to immediately find a counterparty with the same maturity requirements as their own. This is why banks step in as a counterparty for both parties, intermediating between one party’s wish to invest for the short term and the other’s need for long-term financing.

Microprudential supervision is the supervision of individual institutions. This is the traditional form of supervision, which mainly involves supervisors overseeing compliance with qualitative (e.g. risk management) and quantitative (e.g. capital ratio) requirements. Within the framework of the European System of Financial Supervision (ESFS), the institutions involved in microprudential supervision at the European Union level are the European Banking Authority (EBA), the European Securities and Markets Authority (ESMA) and the European Insurance and Occupational Pensions Authority (EIOPA). Microprudential banking supervision in Germany is performed under the Single Supervisory Mechanism by the European Central Bank, the German Federal Financial Supervisory Authority and the Bundesbank. The newer counterpart to microprudential supervision, developed in the wake of the financial crisis, is macroprudential supervision of the financial system as a whole.

The Markets in Financial Instruments Directive (MiFID II) works in conjunction with the Markets in Financial Instruments Regulation (MiFIR), which adds detail to the general rules contained in MiFID. Together, MiFID II and MiFIR aim to further the harmonisation of financial markets in the single European market, improve the transparency of financial markets and enhance investor protection. For instance, they require investment advice to be aligned even more closely with market expectations and the investor’s risk profile, and for any recommendations to be suitable and appropriate given the investor’s knowledge and experience. Investment firms must also execute customer orders on terms most favourable for the client (best execution). Measures to increase transparency include requirements to disclose commission payments and keep records of all documentation relating to financial transactions. The costs associated with a particular financial product must also be set out in a transparent manner, which should ultimately bring down trading costs for investors. Furthermore, MiFID II has strengthened consumer protection by giving the European Securities and Markets Authority (ESMA) as well as the European Banking Authority (EBA) the power to prohibit certain financial products.

The lowest interest rate at which counterparties may submit bids in variable rate tenders.

The minimum reserve requirement forms part of the Eurosystem's monetary policy toolkit. Banks are required to maintain a certain minimum balance on an account held at their national central bank – ie in central bank money, which only the central bank can create. The minimum reserve amount required is calculated by applying the reserve ratio (currently 1% in the Eurosystem) to certain customer deposits at the banks. The minimum reserve amount does not need to be maintained on a daily basis but as an average over the maintenance period. These periods will last six or seven weeks, each starting shortly after the monetary policy meetings of the ECB Governing Council. As the banks do not need to hold the minimum reserve amount on a permanent basis, they can also use it as working capital for their day-to-day payment transactions. Minimum reserves thus act as a buffer in the money market, balancing out strong liquidity swings and steadying interest rate developments. The obligation to maintain minimum reserves means that the banking system has a constant need for central bank money. The central bank meets this demand primarily through refinancing operations. By controlling the interest rate for these transactions, which it sets according to monetary policy criteria, the central bank can influence the interest rate level on the money and capital markets, thereby also steering demand for credit and the creation of deposit money at banks. The remuneration of minimum reserves is set at the Eurosystem’s deposit facility rate.

Mobile payments are trifle amount payments made using at least one mobile device, for example mobile phones or tablets.

A school of thought on monetary policy (main proponent: Milton Friedman) which focuses on keeping monetary growth stable. Monetarists view the regulation of the money supply as the most important factor in monetary policy. They argue that a steadily growing money supply oriented towards expanding production should guarantee price stability. Expanding the money supply too much would lead to inflation, on the other hand.

Together with economic analysis, monetary and financial analysis forms the integrated analytical framework for monetary policy decisions by the Eurosystem. A key component of monetary and financial analysis is monitoring the transmission of monetary policy impulses by the financial sector. In addition, this stream of analysis by means of observing monetary developments continues to provide valuable information about price risks despite the sharply weaker empirical money-price relationship. Furthermore, aspects of financial stability are explicitly incorporated into monetary and financial analysis because financial stability is a prerequisite for price stability.

Monetary capital usually denotes an enterprise's near-money assets such as cash and equities. The Deutsche Bundesbank's definition of monetary capital encompasses certain liability items in the consolidated balance sheets of monetary financial institutions which, owing to their long-term character, are not included in the monetary aggregates M1, M2 or M3. Accordingly, monetary capital includes deposits with an agreed maturity of over two years, deposits redeemable at notice of more than three months, debt securities with an original maturity of more than two years and the capital and reserves of monetary financial institutions.

A financial institution that receives deposits, which are included in the money stock according to the European Central Bank definition, and that grants credit and/or invests in securities. In Germany, banks and money market funds are considered MFIs.

Monetary policy encompasses all the measures a central bank takes to achieve its monetary policy objectives. In the Eurosystem, the primary monetary policy goal is to maintain price stability. To achieve these goals, monetary policy instruments are deployed in the Eurosystem according to the monetary policy strategy, in order to influence the general interest rate level and thus the financing conditions in the economy, amongst other things.  

Monetary policy instruments are the tools a central bank has at its disposal to implement its monetary policy. Pursuant to the Statute of the European System of Central Banks and of the European Central Bank, the Eurosystem may, inter alia, purchase securities, conduct secured credit operations with credit institutions (such as monetary policy refinancing operations) and accept deposits from credit institutions (deposit facility). Moreover, the Eurosystem may require credit institutions to hold minimum reserves on accounts with Eurosystem central banks. Communication measures, such as forward guidance, are occasionally likewise referred to as a monetary policy instrument.

Monetary policy strategy describes the general approach adopted by central banks to safeguard their primary objective – in the Eurosystem this is price stability. In order to ensure price stability, the Governing Council aims for a 2% inflation rate over the medium term. The Governing Council’s commitment to this target is symmetric. Symmetry means that the Governing Council considers negative and positive deviations from this target as equally undesirable. The Governing Council bases its decisions on an integrated analytical framework that brings together two analyses: the economic analysis and the monetary and financial analysis. The Eurosystem’s monetary policy strategy provides a framework for explaining monetary policy decisions to the general public in a clear and transparent manner. This makes it easier to understand the response pattern of monetary policy to economic developments and to assess the general monetary policy stance over the medium term. It inter alia also helps to stabilise private sector expectations and to reduce fluctuations on the financial markets. The Eurosystem intends to assess periodically the appropriateness of its monetary policy strategy, with the next assessment expected in 2025.

Monetary targeting is a monetary policy strategy that aims to promote price stability through the intermediate goal of monetary growth. This strategy is closely associated with the name of the Deutsche Bundesbank, which pursued a policy of monetary targeting between 1975 and 1998.

A group of countries that use a single currency is called a monetary union. Examples of monetary unions are the pan-German Monetary, Economic and Social Union of 1990, and European Economic and Monetary Union (EMU), which was launched in 1999.

Money is the means of exchange and payment that is generally recognised by a society. If one is legally obliged to accept money, it is deemed to be legal tender which can be used to legally settle a financial obligation. Euro banknotes and coins are legal tender in the euro area. In the Eurosystem, only central banks are allowed to produce and circulate euro banknotes and coins.

The rise in money supply is called money creation. In the Eurosystem, only central banks can create central bank money, for instance, by granting a loan to a commercial bank or by purchasing an asset from a commercial bank and, in return, crediting the corresponding amount as a sight deposit to an account held with the central bank. Commercial banks can have their sight deposits in central bank money paid out in banknotes and coins - that is in legal tender - and pay this out to their customers in turn. When a commercial bank repays a central bank loan, the corresponding amount is deducted from the sight deposit on its central bank account; this process is called the destruction of money. Commercial banks can only create book money, not central bank money and thus no banknotes or coins. Commercial bank book money is created when a commercial bank grants a loan to or purchases an asset from a non-bank and this non-bank, in return, credits the corresponding amount as a sight deposit. The Eurosystem can influence and control the commercial banks' money creation through its monetary policy instruments. Banking supervision regulations also limit the creation of money by commercial banks.

In the stricter sense, the money market is where central bank money is traded. Banks use it to balance out short-term liquidity surpluses and shortfalls. The greatest volume of trade is accounted for by "overnight credit", which must be repayed the next day. Banks also agree loans with longer maturities (up to twelve months) via the money market. Refinancing operations concluded between the central bank and banks are also assigned to the money market. In the broader sense, the money market encompasses trade in money market paper. Interbank loans in the money market were previously largely unsecured. Since the beginning of the recent financial crisis, however, many lenders have demanded that borrowers furnish collateral, typically in the form of securities.

Money market funds invest the funds they receive from investors chiefly in short-term instruments such as bank deposits, variable rate securities and fixed rate securities with a maximum residual maturity of twelve months. Investors can return the investment fund certificates (money market fund shares) sold to them by the money market fund at any time, thereby converting them back into liquidity.

Money market paper is a short-term debt security with a maturity of up to one year as a rule. In Germany, this traditionally includes government bonds, such as treasury bills and treasury financing paper, but also debt securities with a maturity of less than one year issued by banks (certificate of deposit) and enterprises (commercial paper).

In general terms, money supply is the stock of money held by non-banks. Money supply is a key economic variable that provides information about future price developments. As there is a fine line between money as a means of payment and money as a store of value, various types of money have been defined. The Eurosystem recognises three monetary aggregates with a decreasing degree of liquidity: M1, M2 and M3; M1 is the most liquid. In addition to the monetary aggregates M1, M2 and M3, experts also consider the amount of central bank money.

Money trading is the technical banking term used to describe the lending of central bank money in the money market. Money trading usually occurs between banks and consists primarily of short-dated loans, known as overnight money. A disruption to money trading, as a result of uncertainty about the solvency of participating banks for instance, can have a negative impact on interbank liquidity, and in turn, impair the transmission mechanism.

Monoline insurers are insurance companies which specialise in hedging credit risk.

The monopoly on the issuing of banknotes refers to the fact that the national central banks are authorised to issue euro banknotes. In the Eurosystem, the exclusive right to issue banknotes is held by the European Central Bank together with the national central banks of the euro-area countries. They put banknotes into circulation via the commercial banks.

Moral hazard describes a situation in which someone has an incentive to behave immorally, e.g. irresponsibly. The term originally comes from the field of insurance but is now used in general to describe a system of inappropriate incentives. A typical example of moral hazard is that an insured person will recklessly take on more risks because any damage he or she causes will ultimately be paid for by the insurance company. Bank employees can be exposed to moral hazard if the prospect of receiving a bonus gives them an incentive to grant as many loans as possible while not themselves being personally liable if the bank and its owners face high losses as a result of credit defaults at a later date.

A mortgage is a right to a piece of land or property which states that the creditor must receive payment of a certain amount to satisfy the claim arising from this right. Mortgages are entered into the Land Register and bound to the claim. If the mortgage holder does not pay back the loaned money as agreed, the creditor can sell the piece of land or property at auction.

Prior to the entry into force of the German Pfandbrief Act (Pfandbriefgesetz) in 2005, banks authorised to issue Pfandbriefe in Germany were known as mortgage banks.

A mortgage loan is a long-term loan secured by lien on real property (today predominantly land charges, less commonly mortgages). Mortgage loans are particularly secured by land and buildings.

A mortgage Pfandbrief is a debt security issued by private mortgage banks and public law credit institutions on the basis of a specific legal framework. Mortgage Pfandbriefe are covered by loans that are collateralised by real estate.

A mortgage-backed security (MBS) is a tradable security backed by a pool of mortgages. A distinction is made between commercial mortgage-backed securities (CMBS), which are secured by commercial real estate and multiple-family dwellings, and residential mortgage-backed securities (RMBS), which are secured by private residential real estate. Once the MBS have been securitised and sold, the mortgage borrower’s payments are forwarded to the securities purchaser. On the one hand, this spreads the risk, which can safeguard stability and mobilise capital for real estate lending. On the other, the stabilising direct relationship between borrower and lender no longer exists. Poor-quality MBS also played a major role in the onset of the financial crisis in 2007.

A mutual fund is a special fund managed by an investment company which is invested in assets such as stocks, bonds or real estate. Co-owners of fund assets each hold shares or units in the form of securities (mutual fund shares). By purchasing mutual fund shares, investors can become co-owners of a - typically broadly diversified - portfolio at relatively low cost. Portfolios are broadly diversified in order to mitigate the risk of loss associated with the investment. There is a difference between retail funds (i.e. funds available to the general public), the shares of which are frequently exchange-traded, and specialised funds, which are created especially for large investors (e.g. insurance companies).