Impact of Reductions in Reserves in the euro area

Transcription

1 Cornelia Holthausen European Central Bank Impact of Reductions in Reserves in the euro area Monetary Policy Implementation Workshop New York, 28 September 2018 The views expressed in this presentation are the authors and may not necessarily coincide with those of the ECB or the Eurosystem.

2 Rubric Eurosystem balance sheet and excess liquidity Bank reserves are still increasing in the euro area Eurosystem balance sheet items Excess liquidity Note: Selected items from the assets (+) and (net) liabilities (-). Source: ECB. 2 Note: excess liquidity is defined as the daily reserve surplus (i.e. holdings above reserve requirements) plus deposit facility holdings and minus reliance on the marginal lending facility. Source: ECB.

3 Rubric Short term money market rates are flat EONIA very close to the deposit facility rate Impact of Reductions in Reserves 3

4 Rubric Overview Interaction with HQLA supply and demand Interaction with regulation Interaction with market segmentation 4

5 Rubric LCR compliance and HQLA supply Large LCR buffers and a large supply of high quality liquid securities Liquidity coverage ratio of EU banks Stock of HQL securities 300% 250% EUR bn 12,000 10, % 150% 8,000 6,000 Level 2 Level 1 Covered Bond Level 1 Government 100% Interquartile range 4,000 50% Median Weighted average 2,000 0% 0 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 Note: 25 th and 75 th percentiles, median and weighted average LCR. Source: EBA Risk Dashboard for 190 banks. 5 Notes: total of high quality liquid securities supplied by governments and private entities, market value after LCR haircuts and before ECB operations, as of 2017-Q3. Source: Eurosystem calculations.

6 Rubric Euro area banks HQLA holdings by type of HQLA Euro area banks will want to replace part of the current reserve holdings with securities EUR bn 4,000 3,500 3,000 2,500 2,000 1,500 1, Q Q Q Q Q Q2 L1 government (domestic) L1 government (other) L1 covered bonds L2a corporate bonds L2a covered bonds L2a government L2b ABS L2b corporate bonds L2b covered bonds Excess liquidity Note: see also forthcoming ECB Occasional Paper. Source: Eurosystem Q Q Q Q Q Q Q1

7 Rubric ECB s impact on HQLA supply and demand Redistribution of HQLA probably more relevant than the reduction Exit from unconventional policy has a fairly neutral effect on HQLA supply: The maturity of the ECB securities portfolio and new bond issuance exchange L1-HQLA mainly for L1-HQLA The maturity of TLTROs does not reduce the liquidity transformation opportunity for banks as long as the full allotment procedure applies Any upward pressure on government bond yields following the end of QE gets partly dampened if banks compete to hold more bonds Funding rates may experience upward pressure if banks see less liquidity inflows and compete for deposits and issue more HQLA demand could spill over to ECB refinancing operations 7

8 Rubric Overview Interaction with HQLA supply and demand Interaction with regulation Interaction with market segmentation 8

9 Rubric Historic relation between EONIA and excess liquidity A structural demand for excess liquidity may be present Notes: The sample period is , when new regulatory initiatives became relevant. The y-axis represents a stylised monetary policy corridor with MLF=1, MRO=0, DFR=-1. The vertical line indicates the excess liquidity level at which the expected market rate equals the MRO rate. Source: EMMI, ECB, ECB calculations. 9

10 Rubric Money market turnover Unsecured money market unlikely to recover owing to regulation Interbank cash lending and borrowing of 38 banks (quarterly total transaction volumes) EUR tn Q Q Q2 OIS FX swaps Secured Unsecured 2006 Q Q Q Q Q Q Q2 Notes: Sample of 38 banks reporting in both the Euro Money Market Survey until Q and under the Money Market Statistical Reporting from Q onwards. Source: ECB Q Q Q Q Q Q Q Q Q Q Q2

11 Secured Rubric money market rates and volumes in the presence of excess liquidity A return of cash management driven repo, and rate spikes on reporting dates? Short-term repo and excess liquidity conditions EUR bn General Collateral Specific collateral Excess Liquidity (RHS) RepoFunds euro GC Pooling ECB deposit facility rate % Cash driven repo rate 2,100 1,800 1,500 1, EUR bn Collateral driven repo rate Note: volumes as executed on the Brokertec and MTS platforms (top panel); RepoFunds index and STOXX GC Pooling ON index (bottom panel). Source: Bloomberg, Brokertec, ECB, MTS

12 Rubric Overview Interaction with HQLA supply and demand Interaction with regulation Interaction with market segmentation 12

13 Rubric Excess liquidity concentration across euro area countries Reserve reduction will concentrate on certain euro area countries Excess liquidity held with national central banks (averages of reserve maintenance periods) 2,000 Others 1,800 ES 1,600 IT 1,400 AT 1,200 BE 1,000 LU 800 FI 600 NL 400 FR 200 DE 0 MP3 12 MP11 14 MP4 17 MP5 17 MP6 17 MP7 17 MP8 17 MP1 18 MP2 18 Notes: excess liquidity covers recourse to the deposit facility and current account holdings in excess of minimum reserve requirements. See also Baldo et al. (2017): The distribution of excess liquidity in the euro area, ECB Occasional Paper, 200. Source: ECB. 13 EUR bn

14 Flows Rubric in the unsecured interbank market (direction, volume and pricing) Excess liquidity driven deposit flows to become less dominant Excess liquidity holding countries Non excess liquidity holding countries Non euro area Notes: the lines represent clockwise from-to flows, with the thickness representing average volume and the colour the destination country group. The size of nodes represents the net inflow into a banking system, with blue nodes indicating excess liquidity holding banking systems. Sample period: July 2016 to April Source: ECB, ECB calculations. 14

15 Repo Rubric rates against various euro area collateral Repo rate dispersion is likely to decline, leaving only differences in perceived creditworthiness % Excess Liquidity (RHS) DE FR IT ES ECB deposit facility rate 2,400 2,100 1,800 1,500 EUR bn , Note: repo rates against German, French, Italian and Spanish collateral. Source: Brokertec, ECB, MTS. 15

16 Repo Rubric spreads against size of monetary policy portfolio and excess liquidity Repo rate dispersion contained owing to sec lending and adjusted bank behaviour Repo Spread to DFR (pp) Excess liquidity (rhs) DE non-gc FR non-gc IT non-gc ,250 1,750 2,250 2,750 Monetary Policy Portfolio EUR bn 2,500 2,000 1,500 1,000 Note: spread on repo against French, German and Italian non general collateral below the ECB s deposit facility rate (DFR) versus the size of the asset purchase programme. Source: Brokertec, ECB, MTS and ECB calculations Excess Liquidity EUR bn

17 Rubric Conclusion LCR over-compliance and the large stock of HQL securities predict limited frictions from the reduction in reserves Euro area banks will want to replace a contained but sizeable share of the reserves with bonds, implying a redistribution of HQLA and competition with non-banks. The demand for HQLA will interact with other parts of the monetary policy framework: possible spillover to refinancing operations, dependence on the size of the corridor, etc. Cash driven market activity is expected to rise, but unlikely that the unsecured interbank segment reaches pre-crisis levels. The concentration of reserves in certain countries may involve frictions, but effects are likely to remain contained post-crisis. 17

18 Rubric Background Impact of Reductions in Reserves 18

19 Rubric EONIA und ESTER - Volumes (15 March July 2018; EUR billion ) EONIA Pre-ESTER / / / / / / / / /2018 Quellen: ECB and EMMI.

20 Rubric EONIA und ESTER Spread and volatility (15 March July 2018; per cent) EONIA Pre-ESTER / / / /2018 Quellen: ECB and EMMI.