Seminar on the Eurosystem Collateral Framework. Brussels 19 June The market view on the new collateral framework

Transcription

1 Seminar on the Eurosystem Collateral Framework Brussels 19 June 2007 The market view on the new collateral framework Godfried De Vidts Director of European Affairs

2 Agenda Definition of liquidity & collateral management Challenge to funding desk ERC point of view A look at the repo market in Europe Use of collateral for ECB purposes Marketable assets Non marketable assets (credit claims) Conclusions & request from ERC

3 Definition of Collateral & Liquidity Management Collateral & Liquidity Management is defined as the optimal management of credit, collateral, capital and all related execution, pricing, operational, documentation and risk management of a portfolio across all products, all business units and all locations.

4 => Liquidity and collateral management <= Credit Equity Fixed Income Listed Products Commodities Cash

5 Challenges to funding desk - Cash equals bonds/equities/lc.. General Collateral (GC) & specials market corporate market including ECP under the STEP label triparty market intra-day funding = on hands to allocate the right collateral at the right place with the bottom up of securities principle (corporate,govies,abs,mbs,equities,cp) to the Eurosystem ( but also for other purposes SNB, BOE,bilateral, triparty,...)

6 Cross-Asset Collateral Government bonds Corporate bonds (XS ) ABS/MBS including CDO, CLO, structures Equities Credit Claims (bank loans) Commodities (metals, energy, ) Real estate

7 European Repo Council 12 th European repo market survey Headline numbers December 2006 EUR 6,430 billion June 2006 EUR 6,019 billion December 2005 EUR 5,883 billion June 2005 EUR 5,319 billion December 2004 EUR 5,000 billion June 2004 EUR 4,561 billion December 2003 EUR 3,788 billion June 2003 EUR 4,050 billion December 2002 EUR 3,377 billion June 2002 EUR 3,305 billion December 2001 EUR 2,298 billion June 2001 EUR 1,863 billion

8 European Repo Council 12 th European repo market survey Currency analysis 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% other USD GBP EUR Dec-01 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06

9 European Repo Council 12 th European repo market survey Currency analysis Main survey Triparty USD 14.1% other 7.3% other 2.2% GBP 14.3% EUR 64.3% USD 41.0% EUR 43.0% GBP 13.8%

10 European Repo Council 12 th European repo market survey Collateral analysis Japan 2.8% US 2.8% UK 14.9% etc 16.9% other EUR 7.2% BE 2.9% ES 4.4% DE 23.6% FR 10.3% IT 14.0%

11 European Repo Council 12 th European repo market survey Collateral analysis 100% 95% 90% 85% 80% 75% 70% 65% 60% 55% 50% other EU EU govis Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06

12 European Repo Council 12 th European repo market survey Collateral analysis Main survey Triparty other EU 15.9% EU govis 22.6% EU govis 84.1% other EU 77.4%

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15 ECB TENDERS - TOT AMOUNT ALLOTED 9/03/2004 9/05/2004 9/06/2004 9/07/2004 9/08/2004 9/09/2004 9/10/2004 9/11/2004 9/12/2004 9/01/2005 9/04/2004 9/02/2005 9/03/2005 9/04/2005 9/05/2005 9/06/2005 9/07/2005 9/08/2005 9/09/2005 9/10/2005 9/11/2005 9/12/2005 9/01/2006 9/02/2006 9/03/2006 9/04/2006 9/05/2006 9/06/2006 9/07/2006 9/08/2006 9/09/2006 9/10/2006 9/11/2006 9/12/2006 9/01/2007 9/02/2007 9/03/2007 9/04/2007 ECB 1WEEK TENDER ECB 3MTHS TENDER

16 European Repo Council 12 th European repo market survey Concentration analysis third % etc 8.3% second % top %

17 Type of security - Evolution Euroclear triparty collateral Source: Euroclear 100% 90% 80% 70% % 50% 40% OTHER SUPRA SOVGN 30% 20% 10% %

18 100% Type of security - Evolution - Clearstream TPR Source : Clearstream 90% 80% 70% 60% 50% 40% Non Govies Govies 30% 20% 10% 0%

19 Marketable assets The merger of Tier 1 and Tier 2 into one list Clearing and Settlement issues remain (Cesame, code of conduct, T2S, ECSB/CESR) Improvements/suggestions ABS/MBS pricing a good example of work to be done

20 Credit claims current situation 2 working streams (ACI versus ERC) initial credit claims in the public sector area Jan 08 all eligible loans under Basle 2 regime national differences in amounts national differences listed versus unlisted national differences in evaluation & eligibility national differences in procedures MT first steps towards a security = ISIN code + repayment of loans not same day

21 Credit claims current situation The eurosystem procedures help the screaning of the data base The switch from securities (recall) to credit claim (submit) is obviously good for the markets improves the liquidity situation in times of crisis (regulatory requirement) re-use of previously unchartered collateral

22 Credit claims secondary market increase harmonisation = centralised treasuriers harmonise the size = IT is there to help automatisation = swift harmonise procedures physical or not = dematerialisation exists no pre-notification = collateral directive is adopted domestic = x-border - allow centralisation

23 Credit claims what needs to be done? look at existing tools to handle credit claims daily use and in crisis situtations quick wins end 2008 one amount for all (not 2012) market needs to know procedure in case of default clarify the haircuts on the website IRB approach look for ways to make it usable do loans exist? is the banking regulator doing what he is supposed to do?

24 Conclusions let s move beyond the start let s use existing products = triparty link ICSD s to central bank money = what is the issue more work to do in documentation US example independant evaluation of risk market utility Euro GC Pooling as an example of NCB involvement The ERC calls for a direct link between triparty techniques and the Eurosystem as a well tested, safe and cheap way of European integration of collateral management.

25 Contact details