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European Financial System

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European Currency Unit (ECU) compositum of the EMS-currencies ... Banque Nationale de Belgique 2,8658. Central Bank of Ireland 0,8496. De Nederlandsche Bank 4,2780 ... – PowerPoint PPT presentation

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Title: European Financial System


1
European Financial System
2
European Financial System
  • European Monetary Union (EMU)
  • European Financial Institutions (EFI)

3
European Financial System
  • European Monetary Union (EMU)
  • European Financial Institutions (EFI)

4
History of the EMU (1)
  • European Monetary System (EMS), founded by EU
    member states in 1979
  • European Currency Unit (ECU) compositum of the
    EMS-currencies
  • Instability of the EMS, Great Britain left EMS in
    1990
  • Italy has been stabilized with great effort

5
History of the EMU (2)
  • European Central Bank in 1989
  • Foundation of the EMU 1.1.1999,
  • 11 Countries AU, BE, FI, FR, GE, IR, IT, NL, LU,
    PO, SP
  • Irrevocible fixed exchange rates of their
    currencies to the EURO
  • 1.1.2001 Entrance of Greece

6
Costs and risks of the EMU (1)
  • Loss of the reputation of the home currency
    (especially in Germany)
  • Equal nominal interest rates, ie. equal risk
    premia
  • Loss of the exchange mechanism, especially in
    case of asymmetric shocks
  • Strong reactions of output and employment in case
    of rigid prices and wages

7
Costs and risks of the EMU (2)
  • Strong fluctuations
  • Loss of an independent monetary policy
  • Structural inadequate monetary policy
  • Different inflation rates
  • Differencies in real interest rates
  • Structural growth differencies

8
Returns from the EMU (1)
  • Significant reduction of transactions costs
    within the EMU
  • Elimination of exchange risks for Intra-EMU sales
  • Enlargement of the home market Elimination of
    the investment risk

9
Returns from the EMU (2)
  • EURO as an international portfolio currency
  • EURO as a vehicle currency in Eastern Europe and
    Northern Africa
  • EURO as a strong business currency
  • EURO as reserve and intervention currency
  • Reduction of the exchange volatility against
    US-Dollar and Yen??

10
European Financial System
  • European Monetary Union (EMU)
  • European Financial Institutions (EFI)

11
European Financial Institutions
  • European System of Central Banks
  • European Money Markets
  • European Bond Markets
  • European Sock Markets
  • European Derivative Markets

12
European Financial Institutions
  • European System of Central Banks
  • European Money Markets
  • European Bond Markets
  • European Stock Markets
  • European Derivative Markets

13
European System of Central Banks (ESCB,
Eurosystem)
  • European Central Bank (ECB)
  • National Central Banks (NCBs)

14
Task of the ESCB
  • Definition and implementation of the monetary
    policy of the euro area (Euroland)
  • Conduction of foreign exchange operations
  • Management of the official foreign reserves of
    the Member States
  • Promotion of the smooth operation of payment
    systems

15
Capital Subscription to the ECB
  • Banca dItalia 14,8950
  • Banco de Espana 8,8935
  • Banco de Portugal 1,9232
  • Bank of Greece 2,0564
  • Banque de France 16,8337
  • Banque centrale du Luxembourg 0,1492
  • Banque Nationale de Belgique 2,8658
  • Central Bank of Ireland 0,8496
  • De Nederlandsche Bank 4,2780
  • Deutsche Bundesbank 24,4935
  • Österreichische. Nationalbank 2,3594
  • Suomen Pankki 1,3970
  • Bank of England 14,6811
  • Danmarks Nationalbank 1,6709
  • Sveriges Nationalbank 2,6537

16
Organization of the ESCB
  • Executive Board
  • Governing Council
  • General Council

17
Composition of the Organisation
  • Executive Board (EB)
  • Members President (P), Vice-President (VP),
    4 other members of the Board (DB)
  • Governing Council (GOC)
  • Members P, VP, 4 DB, 12 governors of the
    NCBs of Euroland
  • General Council (GEC)
  • Members P, VP, 12 governors of the NCBs
    of Euroland, 3 governors of the NCBs of
    Non-euro areas

18
Responsibility of the EB
  • Implementation of the monetary policy
  • Execution of the decisions of the GOC
  • Instruction of the NCBs

19
Responsibility of the GOC
  • Guidelines and decisions to ensure the
    performance of Eurosystem
  • Definition and specification of the monetary
    policy of Euroland
  • Guidelines for the implementation of the monetary
    policy in Euroland

20
Responsibility of the GEC
  • Advisory of the ECB
  • Collection of statistical information
  • Preparation of the ECBs annual reports
  • Standardization of the accounting and reporting
    of the NCBs
  • Establishment of further key for the ECBs
    capital subscription
  • Preparation of the fixing of the exchange rates
    of further member states

21
Independency of the ECSB
  • Minimum renewable term of office for governors of
    five years
  • Minimum non-renewable term of office for members
    of the Executive Board of eight years
  • Removal from office is only possible in the event
    of incapacity or serious misconduct (Competence
    is due to the Court of Justice of the EC)

22
ECBS Monetary Policy Framework (MPF)
  • Objectives of Monetary Policy
  • Instruments of Monetary Policy
  • Eligible Counterparts
  • Types of Transactions
  • Modes of Procedures
  • Underlying Assets
  • Modifications of MPF

23
1. Objectives of Monetary Policy
  • Price stability is the primary goal
  • Support of the economic policy in EC
  • Efficient resource allocation in EC

24
2. ECBS Monetary Policy
  • Open Market Operation
  • Standing Facilities
  • Minimum Reserves

25
Open market operations
  • Main refinancing operations
  • Longer-term refinancing operation
  • Fine-tuning operations
  • Structural operations

26
Standing Facilities
  • Marginal lending facility
  • Deposit facility

27
Minimum Reserve
  • Credit Institutions subject to reserves
  • Reserve base and reserve ratios
  • Maintenance of reserve holdings
  • Reporting and verification

28
3. Eligible Counterparties
  • General Criteria
  • Selection for quick tenders and bilateral
    operations
  • Sanctions in the event of non-compliance
  • Suspension or exclusion

29
General Eligibility Criteria
  • Only institutions subject to Eurosystems minimum
    reserve systems
  • Financially sound institutions
  • Additional Operational criteria

30
European Financial Institutes
31
Regional Distribution
32
4. Types of Transactions
  • Reverse Transactions
  • Outright Transactions
  • Issuance of ECB debt certificates
  • Foreign exchange swaps
  • Collection of fixed term deposits

33
5. Modes of Procedure
  • Tender procedures
  • Procedures of bilateral operations
  • Settlement procedures

34
6. Eligible Assets
  • Tier One Assets
  • ECB debt certificates
  • Other marketable debt instruments
  • Tier Two Assets
  • Marketable debt instruments
  • Non- marketable debt instruments
  • Equities traded on a regulated market

35
European Financial Institutions
  • European System of Central Banks
  • European Money Markets (EMM)
  • European Bond Markets
  • European Stock Markets
  • European Derivative Markets

36
European Money Market
  • Absolute and relative reduction of the engagement
    of the government sector in absolute and relative
    terms
  • Strong increase of the MFIs in absolute and
    relative terms
  • Significant absolute and relative increase of
    other corporations

37
History of EMM
38
Market shares of deposits, repo and currency swap
in Euroland
39
Deposits, repo and foreign currency swaps in
Euroland
40
European Financial Institutions
  • European System of Central Banks
  • European Money Markets
  • European Bond Markets (EBM)
  • European Stock Markets
  • European Derivative Markets

41
History of EBM
42
European Bond Market
  • OTC Market
  • EuroMTS pan-European electronic trading System
    for Euro government bonds
  • Euronext electronic platform (Merger of
    exchanges of Amsterdam, Bruxelles, Paris)
  • Eurex-Bonds electronic trading platform of the
    Eurex (Merger of DTBSoffex)

43
EuroMTS
  • Owners major American and European financial
    institutions
  • Trading platform for government bonds from 10
    European Countries and 3 agency issuer
  • Austria, Belgium, Finland, France, Germany,
    Greece, Italy, The Netherlands, Portugal, Spain,
    the European Investment Bank, Freddie Mac and
    Kreditanstalt für Wiederaufbau

44
European Financial Institutions
  • European System of Central Banks
  • European Money Markets
  • European Bond Markets
  • European Stock Markets
  • European Derivative Markets

45
European Stock Markets
  • London Stock exchange
  • Euronext (Merger of the exchanges of Amsterdam,
    Bruxelles, Paris)
  • Deutsche Börse (Cooperation with Finexchange,
    Schweizer Börse, Wiener Börse)
  • Regional exchanges (Madrid, Milan)

46
European Stock Exchanges
47
European Financial Institutions
  • European System of Central Banks
  • European Money Markets
  • European Bond Markets
  • European Share Markets
  • European Derivative Markets

48
European Derivative Market
  • Eurex (Soffex Deutsche Börse)
  • Euronext (Merger of Bruxelles, Paris, Amsterdam)
  • LIFFE (London)

49
European Derivative Markets
50
Eurex - A leader among Futures and Options
Exchanges
51
Products traded at the Eurex
  • Money Market Products
  • Capital Market Products
  • Equity Market Products
  • Index Products

52
Money Market Products
  • One-Month Euribor Futures
  • Three-Month Euribor Futures
  • Options on Three-Month Euribor Futures

53
Capital Market Products
  • Euro SCHATZ Futures
  • Options on Euro SCHATZ Futures
  • Euro BOBL Futures
  • Options on Euro BOBL Futures
  • Euro BUND Futures
  • Options on Euro BUND Futures
  • Euro BUXL Futures
  • CONF Futures

54
Equity Market Products
  • Stock Options on German/Swiss/Nordic/
    Dutch/Italian/French/US and Neuer Markt Shares
  • Low Exercise Price Options on German/
    Swiss/Nordic/Dutch/Italian/French/US and Neuer
    Markt Shares

55
Index Products
  • Index Futures DJ Global Titans 50SM/DJ STOXXSM
    600/DJ STOXXSM Sector/DJ STOXXSM 50/DJ Euro
    SOXXSM 50/Dax/ NEMAX/SMI/HEX 25
  • Index Options DJ Global Titans 50SM/DJ STOXXSM
    600/DJ STOXXSM Sector/DJ STOXXSM 50/DJ Euro
    STOXXSM 50//Dax/NEMAX/SMI/HEX 25
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