Eurosystems liquidity management and NCB role - Jaap Teerhuis_tcm47-157221

The decision making progress - LICO LIquidity COmmittee - Liquidity Management Unit´s tasks and IT infrastructure - Role NCBs Outline presentation... Liquidity supply: - - role MRO,

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Jaap TeerhuisFinancial Markets Division

Eurosystem´s Liquidity Management

and NCBs´ roleApril 11th, 2007

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•Liquidity Management is the central task of the

implementation

•Decentralized approach implementation : role NCB’s

unique and public available information limited

•Introduction to Liquidity Management Game (tomorrow)

What is in for me?

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1 The purpose of the ECB’s liquidity management

2 Assessment of the liquidity demand

3 Liquidity supply: -

- role MRO, LTRO and FTO

- role Benchmark Allotment

4 The decision making progress

- LICO (LIquidity COmmittee)

- Liquidity Management Unit´s tasks and IT

infrastructure

- Role NCBs

Outline presentation

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4.The decision making progress

infrastructure

- Role NCBs

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• The liquidity management aims to steer short term

interest rates such that they are in line with the

policy rate (the minimum bid rate)

• The liquidity management does not aim to (directly)

influence a monetary aggregate

• Implementation monetary policy is successful if

operational target EONIA is a few base points above minimum bid rate Main Refinancing Operation

Purpose of the liquidity management

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Supply

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Purpose of the liquidity management

Supply

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Daily relationship between liquidity factors: balance sheet

Simplified balance sheet Eurosystem, February 2007, EUR billions.

Autonomous factors Autonomous factors

Other autonomous factors(net)180.7

Reserve requirements

Main Refinancing Operation (A5.1) 286.5

Longer Term Refinancing Operation(A5.2)

130.0

Marginal lending facility (A5.5) 0.0 Deposit facility (L2.2) 0.0

1004.8 1004.8

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The Liquidity Management Table

Date: 10 apr 07Liquidity table(Only figures in bold characters are definitive All other figures are subject to uncertainty Especially the displayed CONFIDENTIAL Time: 10:06 All figures in EUR billion amounts of future monetary policy operations have only the purpose of a sensitivity analysis.)

I Open market operations II St fac III Autonomous factors IV Reserve holdings V Interest rates

Main refin

oper.

Longer term oper.

Other oper.

Auton

factors (broad)

surpl.

Aver daily reser

surpl.

Accum

daily reser

surpl.

EONIA Marg

MRO rate

Dep

rate

Marg lend

rate

Min bid rate

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infrastructure

- Role NCBs

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Assessment of the liquidity demand

Time period MRO 1 week

Demand:

Autonomous factors factors (forecast)Reserve requirements (freezed)

Excess reserves (forecast)

Standing facilities (assumption)

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• Mainly based on expert knowledge:

information on portfolio management operations, frompublic debt manager, accounting department, etc

• Exception: banknotes

- STS-model (executed by the ECB):

- Aggregate expert forecast from NCBs

- Combined forecast:

- A weighted average of the two forecasts

- Outperforms each of the individual forecasts

Liquidity needs: forecasting the autonomous factors

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Total autonomous f actors in 2004 and 2 005

(EUR millions)

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Absolute values of accumulated T+5 autonomous factors f orecast errors

2 004- 2005

(m onthly av erages in EUR billions)

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Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Gov deposits 2004 Net foreign assets 2004 Items in course of settlement 2004 Net assets den in euro 2004 Banknotes 2004 Other autonomous factors 2004 Total AF 2003 Total AF 2004

T+5 cumulated errors in 2004 and 2003

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Strict time framework for information flow

AF items

accounts, standing facilities, total autonomous factors) on public wire services (Bloomberg,

Reuters en Moneyline)

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- role MRO and LTRO

infrastructure

- Role NCBs

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• MROs play the role of steering the liquidity conditions

and signalling the monetary policy stance

• Allotments are oriented towards a quantitative

benchmark allotment (BA)

• The BA is (from 24 March 2004) now onwards

explicitly communicated to the market on

announcement day and updated BA on allotment day

at 11.15h

=> increase transparency

=> reduce risk of wrong mon pol signals

Liquidity supply: main refinancing operations

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The benchmark allotment in a main refinancing operation [MRO] is

the allotment amount which allows counterparties to smoothly fulfil their reserve requirements until the day before the

settlement of the next MRO, when taking into account the

following liquidity needs:

1) liquidity imbalances that have occurred previously in the same

reserve maintenance period and which were not anticipated in the preceding MRO;

2) ECB’s forecast of the autonomous factors;

3) ECB’s forecast of excess reserves, which are assumed to be the

same on each day of the reserve maintenance period

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Benchmark allotment can be calculated by a formula

or a “liquidity table”

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− +

+

⋅ +

− +

⋅

−

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1 M

provided already

Liquidity

Mat 1 2

needs liquidity Future

imbalance liquidity

d Accumulate

Bench

allotment benchmark

the of size the is M

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H period over LTROs

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is L

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s ECB'

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A day

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of day settlement the

is S

Bench 1 2 Mat 1

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Benchmark allotment can be calculated by a formula

or a “liquidity table”

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Date: 10 apr 07Liquidity table(Only figures in bold characters are definitive All other figures are subject to uncertainty Especially the displayed CONFIDENTIAL Time: 10:06 All figures in EUR billion amounts of future monetary policy operations have only the purpose of a sensitivity analysis.)

I Open market operations II St fac III Autonomous factors IV Reserve holdings V Interest rates

Main refin

oper.

Longer term oper.

Other oper. Sum Marg lend

Auton

factors (broad)

Daily curr

acc. Requ reser reser Daily

surpl.

Aver daily reser

surpl.

Accum

daily reser

surpl.

EONIA Marg

MRO rate

Dep

rate Marg lend rate

Min bid rate

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•Nowadays MRO´s MP :

Benchmark Allotment plus EUR 1 billion to meet

counter parties´ preference of frontloading their reserve requirements

Last MRO MP:

Benchmark Allotment plus EUR 1 billion

Consequence: bias for FTO last day MP!!!

Last day MP:

FTO (internal and unofficial treshold AF forecast)

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- role MRO and LTRO

infrastructure

- Role NCBs

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MRO Announcement day (Monday): Tender announced to NCBs and public

15:30h Tender announced to NCBs and to public wire services.

By 17:00h One preliminary liquidity scenarios based on balance sheets and forecasts received in the morning produced by Liquidity Management team for discussion at the LICO (LIquidity COmmittee).

17:00h Weekly liquidity meeting between DG Operations and DG Economics to discuss preliminary proposal regarding the allotment

amount.

The decision making progress

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MRO allotment day (Tuesday): Submission of bids and allotment of tender

ECB Liquidity management

8 00h and 8 35h 10.1 5h- 1 0.45h

NCB and ECB balance sheets and forecasts Liquidity Committee meeting between

combined to produce the Eurosystem balance sheet DG Operations and DG Economics

and forecast selects a liquidity scenario to propose to

By 1 0.00h the Executive Board

Liquidity scenarios are updated with 11 00h

the new data for discussion at the Executive Board decides the allotment on the Liquidity Committee basis of the proposal made by the Liquidity

Committee

Counterparties and NCBs

9.30h Deadline for submission of bids by counterparties

1 0.00h Deadline for submission of bids by NCBs

1 1 15h Announcement of tender results

1 1 20h Tender allotment results announced to public wire services and on ECB webpage

1 1 45h Certification of individual allotment results at the NCB level

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•Daily briefing major developments FX, bond, stock, money, gold and oil market

•Participants : Front Office Division, Liquidity Management Unit and Monetary Policy Stance

•6x times a week:

- no MRO : normal LICO (Wednesday till Friday) at 10.15h

- MRO Announcement day : normal at 10.15h and 17.00h

- MRO Allotment day : LICO at 10.15h

- One or two EB-members, proposal allotment decision to EB meeting

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ENSD messages from NCBs Balance Sheets & Forecasts

Liquidity Management Application

ECB Banknotes adjusted forecast

Eurosystem Balance Sheet

Non-Aggregate Balance Sheet

Balance Sheet Comparison

ECB Balance Sheet

& ECB Forecast

Autonomous Factor Forecast

Autonomous Factor Evolution

Autonomous Factor Forecast comparison

Free text message field

Debt Certificates changes calendar

EONIA rate

Marginal MRO rate

ECB key rates

Estimate of CuAc holding

+

excess reserves

Historical data for Internet Liquidity table

Balance Sheet Overview

Current account / standing facilities

Reuters Pages ECB40, 42, 44

Tender calendar

AF changes in Next MP calendar

Archive (LM DataStore)

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