ANNUAL REPORT 2008 - Polymer Bank Notes of the World

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Chart A Liquidity supply through openmarket operations and use of standingfacilities(EUR billions)950850marginal lending facilitylonger-term refinancing operationsmain refinancing operationsfine-tuning operationsdeposit facility950850The measure led to a significant increasein the total volume of outstanding eurodenominatedopen market operations, asthe liquidity supply was now determined bythe aggregate amount bid by counterparties(see Chart A). The full allotment policy wasde facto implemented on 9 October by meansof a liquidity-providing fine-tuning operationin which all bids were satisfied.75065055045035025015050-50-150-250-350Jan. Feb. Mar. Apr. MayJuneJulyAug. Sep. Oct. Nov.Dec.2008Source: ECB.Chart B Spread between the EONIA and theMRO rate75065055045035025015050-50-150-250-350(until 14 October: minimum bid rate; from 15 October: fixed rate)EONIA spread80806040200-20-40-60-80Jan. Feb.Mar.Apr.MayJune JulyAug.Sep. Oct.Nov.Dec.2008Source: ECB.6040200-20-40-60-80Moreover, on 15 October the GoverningCouncil decided to apply fixed rate tenderswith full allotment also to LTROs (andsupplementary LTROs), with effect from30 October and at least until the end of the firstquarter of 2009.This enhanced liquidity provision significantlyalleviated tensions at the short end of themoney market and led to a general declinein the EONIA, starting from the date of theannouncements (see Chart B). Between mid-October and the end of 2008, the EONIA wasconsistently below the MRO rate. Moreover,the EONIA declined within each maintenanceperiod, in line with counterparties’ gradualfulfilment of reserve requirements andincreasing overall use of the deposit facility.2 Reduction of the corridor formed by thestanding facility ratesOn 8 October the Governing Council alsodecided to reduce the width of the corridorformed by the two standing facilities(i.e. the marginal lending facility and the depositfacility) from 200 to 100 basis points. The rateon the marginal lending facility was set at50 basis points above the MRO rate, and therate on the deposit facility was set at 50 basispoints below the MRO rate. The reductionof the corridor aimed to further ease banks’liquidity management by offering cheapercentral bank intermediation to the bankingsector. This measure became effectiveon 9 October and remained in place until20 January 2009, when the width of the corridorwas widened again to 200 basis points.ECBAnnual Report2008101
3 Supplementary longer-term refinancing operationsFollowing a decision by the Governing Council on 15 October, the provision of longer-termrefinancing was enhanced by rolling over existing operations and launching new operations. Asa result, during each maintenance period four longer-term operations were conducted: one forthe length of the maintenance period (a special-term refinancing operation), two with a maturityof three months, and one with a maturity of six months. Consequently, by the end of 2008the share of MROs in the total refinancing volume had declined to about 28%, while LTROs,supplementary LTROs and the special-term refinancing operation accounted for the remaining72% (see Chart A).4 Additional US dollar and Swiss franc-providing operationsThe Eurosystem’s US dollar-providing operationsFrom mid-September 2008 strains in the US dollar money markets worsened significantly. Inparticular, the rates quoted for US dollar deposits during Asian, European and early US tradinghours were very high, at times reaching levels above 10%. Market liquidity in the foreignexchange swap market was also unusually low amid signs of increased stress and marketsegmentation, whereby access to US dollar funding became extremely difficult for institutionsoutside the United States. In response, the Eurosystem further reinforced its provision ofUS dollar liquidity to Eurosystem counterparties by adding operations with a 7-day and thereafteran overnight maturity to the existing 28-day and 84-day operations. It also further increased theamounts offered to counterparties in these US dollar-providing operations in two steps, each timealso increasing the swap line with the Federal Reserve System. In early October the maximumamounts in the Eurosystem’s US dollar liquidity-providing operations reached USD 50 billionin the overnight operations, USD 40 billion in the 28-day operations and USD 20 billion in the84-day operations.On 15 October, given the high levels of uncertainty prevailing in the banking system, the ECB,in coordination with the Federal Reserve System, committed to fulfil all bids at a fixed rate forthe 7-day, 28-day and 84-day operations, while the overnight operations were discontinued.In order to mitigate the potential problem of insufficient availability of eligible collateral, giventhe full allotment procedure in both euro and US dollar liquidity-providing operations, the ECBannounced on 15 October 2008 that the Eurosystem would also conduct US dollar liquidityprovidingoperations in the form of EUR/USD foreign exchange swaps. These foreign exchangeswap operations, conducted in parallel with the existing US dollar collateralised repurchaseoperations, were also financed through the swap agreement with the Federal Reserve System,which had been extended until 30 April 2009.The Eurosystem’s US dollar repurchase operations continued to meet with fairly high demand,with large bid amounts and a large number of bidders, whereas participation in the US dollarforeign exchange swap operations generally remained very limited in terms of both biddingvolumes and the number of participants.The Eurosystem’s Swiss franc-providing operationsThe increased tensions in international money markets observed in October 2008 also led toupward pressure on short-term Swiss franc money market rates. At the same time, the Swiss102 ECBAnnual Report2008
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EN2008EUROPEAN CENTRAL BANK ANNUAL
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© European Central Bank, 2009Addre
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CHAPTER 4FINANCIAL STABILITY AND IN
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7 Statistical accounting consequenc
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ABBREVIATIONSCOUNTRIESOTHERSBE Belg
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in the course of the year, in line
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currencies, T2S will be a major ste
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CHAPTER 1ECONOMICDEVELOPMENTS ANDMO
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Chart 1 ECB interest rates and mone
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Despite moderating, the annual grow
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substantial downward revisions in r
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in July, annual inflation in the OE
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As regards the Chinese economy, rea
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generally tighter financing conditi
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were recorded in December, but thes
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was driven mainly by developments i
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market tensions, particularly for l
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anking and financial system. At the
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cash flows to compensate for a redu
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quarter of 2008 and -0.1% in Decemb
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whereby investors’ uncertainty su
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September onwards, amid the great u
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Chart C Trading volumes for governm
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sponsored rescue plans were initiat
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The annual growth rate of consumer
Page 52 and 53: end of 2007. By December 2008 this
Page 54 and 55: calculated as the balance between g
Page 56 and 57: commodity prices (see Box 4). Conve
Page 58 and 59: Chart D Longer-term inflation expec
Page 60 and 61: apidly to 1.7% in December, mainly
Page 62 and 63: productivity slowed to 0.2% in the
Page 64 and 65: Table 3 Composition of real GDP gro
Page 66 and 67: Corporate investment, which had exp
Page 68 and 69: Box 5LABOUR MARKET DEVELOPMENTS IN
Page 70 and 71: Chart C Breakdown of employment gro
Page 72 and 73: Box 6DEVELOPMENTS IN THE ISSUANCE A
Page 74 and 75: Chart B Government bond yield sprea
Page 76 and 77: Box 7STATISTICAL ACCOUNTING CONSEQU
Page 78 and 79: warranted because of the need to co
Page 80 and 81: sharp depreciation of the euro was
Page 82 and 83: prices in the first eight months of
Page 84 and 85: focused more on the production rath
Page 86 and 87: segments and, in turn, affected eur
Page 88 and 89: and Bulgaria registered robust grow
Page 90 and 91: In the remaining non-euro area EU c
Page 92 and 93: Estonian kroon and the Lithuanian l
Page 94 and 95: Table 10 Official monetary policy s
Page 96 and 97: the Bank of England and Sveriges Ri
Page 98 and 99: CHAPTER 2CENTRAL BANKOPERATIONSAND
Page 100 and 101: Box 10MONETARY POLICY OPERATIONS DU
Page 104 and 105: franc funding needs of banks with n
Page 106 and 107: MINIMUM RESERVE SYSTEMCredit instit
Page 108 and 109: with the ample allotments in the fi
Page 110 and 111: 2008. By contrast, the average shar
Page 112 and 113: and SDR holdings increased by aroun
Page 114 and 115: and the ECB). As a result of carefu
Page 116 and 117: cross-CSD settlement. T2S will thus
Page 118 and 119: ELIGIBLE LINKS BETWEEN NATIONAL SEC
Page 120 and 121: Chart 48 Number of euro banknotes i
Page 122 and 123: 3.3 BANKNOTE PRODUCTION AND ISSUANC
Page 124 and 125: 4 STATISTICSThe ECB, assisted by th
Page 126 and 127: iii) payments statistics and iv) de
Page 128 and 129: 5 ECONOMIC RESEARCHThe main functio
Page 130 and 131: were organised to disseminate resea
Page 132 and 133: the Financial Collateral Directive,
Page 134 and 135: on the Banque centrale du Luxembour
Page 136 and 137: standards by individual Eurosystem
Page 138 and 139: CHAPTER 3ENTRY OF SLOVAKIAINTO THE
Page 140 and 141: Table 13 Main economic indicators f
Page 142 and 143: As of January 2009 Slovakia is thus
Page 144 and 145: 3 OPERATIONAL ASPECTS OF THE INTEGR
Page 146 and 147: 4 THE CASH CHANGEOVER IN SLOVAKIATH
Page 149 and 150: Willem F. Duisenberg accepting the
Page 151 and 152: 1 FINANCIAL STABILITYThe Eurosystem
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With regard to merger and acquisiti
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with the principles set out in Octo
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2.2 BANKINGCAPITAL REQUIREMENTS DIR
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3 FINANCIAL INTEGRATIONThe Eurosyst
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The market for short-term paper in
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de France and the Banca d’Italia.
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and the Eurosystem’s business con
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4.2 RETAIL PAYMENT SYSTEMS ANDINSTR
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for Clearing and Settlement, and th
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Willem F. Duisenberg at his farewel
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1 EUROPEAN ISSUESIn 2008 the ECB co
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for financial institutions, to faci
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1.3 DEVELOPMENTS IN AND RELATIONS W
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On a number of occasions in 2008, t
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countries have voiced support for t
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Former Italian President Carlo Azeg
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1 ACCOUNTABILITY VIS-À-VIS THE GEN
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implementation of the steps foresee
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CHAPTER 7EXTERNALCOMMUNICATION
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2 COMMUNICATION ACTIVITIESThe ECB a
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Panel at the Fifth ECB Central Bank
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1 DECISION-MAKING BODIES AND CORPOR
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Council decided on the main aspects
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1.3 THE EXECUTIVE BOARDThe Executiv
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1.4 THE GENERAL COUNCILThe General
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The Eurosystem/ESCB committees have
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members of the Executive Board. 13
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for their current position. On the
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statistical office (Statistisches B
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4 ANNUAL ACCOUNTS OF THE ECB212 ECB
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function, and by the Governing Coun
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BALANCE SHEET AS AT 31 DECEMBER 200
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PROFIT AND LOSS ACCOUNT FOR THE YEA
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mid-market prices on 30 December 20
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The defined benefit obligation is c
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NOTES ON THE BALANCE SHEET1 GOLD AN
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Eurosystem (see “Banknotes in cir
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(see “Banknotes in circulation”
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values at which the transactions we
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15 CAPITAL AND RESERVESCAPITALPursu
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epresenting the remainder of its ca
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NOTES ON THE PROFIT AND LOSS ACCOUN
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individual circumstances. Basic sal
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5 CONSOLIDATED BALANCE SHEET OF THE
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ANNEXES
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Number Title OJ referenceECB/2008/1
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Number Title OJ referenceECB/2009/1
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Number 2 Originator SubjectCON/2008
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Number 4 Originator Subject OJ refe
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oth the marginal lending facility a
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OVERVIEW OF THE ECB’S COMMUNICATI
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y the respective NCBs will also be
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OPEN MARKET OPERATIONS BY CURRENCYE
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USD operationsType oftransaction 1)
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DOCUMENTS PUBLISHED BY THEEUROPEAN
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95 “Financial stability challenge
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1012 “Petrodollars and imports of
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GLOSSARYThis glossary contains sele
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Economic analysis: one pillar of th
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Financial stability: condition in w
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MFIs (monetary financial institutio
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Reserve base: the sum of the eligib
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