The European Court of Justice (ECJ) has annulled the European Central Bank (ECB) decision that required six French lenders to hold capital against deposits against specific state-backed funds.

In a press statement the court said that the “ECB has erred in law and committed manifest errors of assessment”.

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Following the 2008 economic crisis, the European legislature decided to introduce a new instrument to restrict the size of the bank’s debt called the leverage ratio.

The ratio is calculated on the basis of the lender’s all investments and not confined on the level of risk of investments (exposure) of the credit institutions.

Under an exemption specified in the legislation, six French institutions appealed to the ECB to exclude the exposure in multiple savings accounts taken out with them to the French public investment group Caisse des dépôts et consignations (CDC), from calculation in the leverage ratio.

However, in a decision published in 2016, ECB rejected the appeal to exclude the exposure of the amount deposited in three livrets namely savings account, sustainable and inclusive development account and public savings account.

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ECJ overturned the decision noting that the ECB should allow the banks to exclude exposures associated to the savings accounts from the leverage ratio.

It also noted that “where the conditions for granting the exclusion are satisfied, the ECB has discretion to grant that exclusion or not.

“The existence of that discretion is clear from the wording of the regulation and is explained by the need to enable the ECB to make choices, in the light of the particular features of each case.”