In such cases, liquidity shortfalls could be covered through collateralised intraday or overnight credit, or auctioning extra liquidity to the market.
The Eurosystem is prepared to handle this kind of market disturbance.
VI. CONCLUSION
32. In my remarks this evening, I have looked at the euro area as one that has a central bank which does not carry out banking supervision. This would be normal, because in many countries banking supervision is not a task of the central bank. What is unique is that the areas of jurisdiction of monetary policy and of banking supervision do not coincide. This situation requires, first of all, the establishment of smooth co-operation between the Eurosystem and the national banking supervisors, as is the case at the national level where the two functions are separated. The most prominent reason for this is, of course, the scenario where the provision of liquidity from the central bank has to be made in a situation that is generated by problems of interest to the supervisor. But beyond that, I do not know any country in which the central bank is not very closely interested in the state of health of the banking system, irrespective of its supervisory responsibilities.
33. In my view, we should move as rapidly as possible to a model in
which the present division of the geographical and functional jurisdiction
between monetary policy and banking supervision plays no significant role.
I do not mean necessarily a single authority or a single set of prudential
rules. Rather I mean that the system of national supervisors needs to
operate as effectively as a single authority when needed. While the causes
of banking problems are often local or national, the propagation of
problems may be area-wide. The banking industry is much more of a system
than other financial institutions.
34. I am clearly aware that we are far from having a common
supervisory system. But since the euro has just been launched and will
last, we have to look in prospective terms at what needs to be set in
place. There is no expectation, at least to my mind, that the division of
responsibility in the euro area between the central bank and the banking
supervisory functions should be abandoned. Although the Treaty has a
provision that permits the assignment of supervisory tasks to the ECB, I
personally do not rely on the assumption that this clause will be
activated. What I perceive as absolutely necessary, however, is that co-
operation among banking supervisors, which is largely voluntary but which
finds no obstacles in the existing Directives or in the Treaty, will allow
a sort of euro area collective supervisor to emerge that can act as
effectively as if there were a single supervisor. This is desirable in the
first instance to render the supervisory action more effective against the
background of current and future challenges and, second, to assist the
Eurosystem in the performance of its basic tasks.
TABLES
Table 1. Market share of branches and subsidiaries of foreign credit institutions as % of total domestic assets, 1997
From EEA countries From third countries
TOTAL
Branches Subsidiaries Branches
Subsidiaries
AT 0.7 1.6 0.1 1.0
3.4
BE 9.0 19.2 6.9 1.2
36.3
DE 0.9 1.4 0.7 1.2
4.2
ES 4.8 3.4 1.6 1.9
11.7
FI 7.1 0 0 0
7.1
FR 2.5 NA 2.7 NA
9.8
IR 17.7 27.8 1.2 6.9
53.6
IT 3.6 1.7 1.4 0.1
6.8
NL 2.3 3.0 0.5 1.9
7.7
SE 1.3 0.1 0.1 0.2
1.7
UK 22.5 1.0 23.0 5.6
52.1
Source: ECB report "Possible effects of EMU on the EU banking systems in the medium to long term" (February 1999).
Table 2. Assets of branches and subsidiaries of domestic credit institutions in foreign countries as % of total domestic assets, 1997
In EEA countries In third countries
TOTAL
Branches Subsidiaries Branches
Subsidiaries
AT 2.6 NA 3.7 NA
NA
DE 12.0 7.3 7.8 0.9
27.9
ES 5.5 1.4 2.1 5.9
14.9
FI 5.9 0.3 6.6 0.3
13.1
FR 9.1 6.9 9.4 3.8
29.2
IR 8.3 14.9 1.3 10.1
34.6
IT 7.2 2.7 3.8 1.5
15.2
SE 7.2 NA 5.4 NA
NA
Source: ECB report "Possible effects of EMU on the EU banking systems in the medium to long term" (February 1999).
Table 3. Concentration: Assets of the five biggest credit institutions as % of total assets
1985 1990 1997
AT 35.8 34.6 48.3
BE 48.0 48.0 57.0
DE NA 13.9 16.7
ES 38.1 34.9 43.6
FI 51.7 53.5 77.8
FR 46.0 42.5 40.3
IE 47.5 44.2 40.7
IT 20.9 19.1 24.6
NL 69.3 73.4 79.4
SE 60.2 70.02 89.7
UK NA NA 28.0
Source: ECB report "Possible effects of EMU on the EU banking systems in the medium to long term" (February 1999).
Table 4. Number of branches and subsidiaries of foreign credit institutions, 1997
From EEA countries From third countries TOTAL
Branches Subsidiaries Branches
Subsidiaries
AT 6 20 2 11
39
BE 25 16 15 15
71
DE 46 31 31 45
153
ES 33 21 20 6
80
FI 9 0 0 0
9
FR 46 118 43 98
305
IR 18 21 3 7
49
IT 36 4 17 4
61
NL 11 8 11 19
49
SE 14 0 3 1
18
UK 106 18 149 114
387
Source: ECB report "Possible effects of EMU on the EU banking systems in the medium to long term" (February 1999).
Table 5. Private non-financial enterprises' bonds, credit institutions' bonds and government bonds outstanding as % of GDP,
1997
Private Credit Government non-financial institutions' bonds bonds bonds
AT 2.7 31.1 30.6
BE 10.0 38.3 111.0
DE 0.1 54.6 37.6
ES 2.6 4.5 52.9
FI 3.7 7.1 35.5
IE 0.01 1.6 32.2
IT 1.6 19.4 100.4
NL NA 43.1 53.4
SE 3.6 38.6 46.5
Source: ECB report "Possible effects of EMU on the EU banking systems in the medium to long term" (February 1999).
Euro and European integration
Speech delivered by Eugenio Domingo Solans,
Member of the Governing Council and the Executive Board of the
European Central Bank, at the "Euro and Denmark" exhibition in Aalborg, Denmark, on 10 September 1999
INTRODUCTION
It is a real pleasure for me to participate in the "Euro and Denmark"
exhibition in Aalborg. It is the first time since my appointment as a
member of the Executive Board of the European Central Bank (ECB) in May
1998 that I have had the opportunity to speak in Denmark. Thank you for
your invitation and for asking me to share my views on the euro and on
European integration with investors and experts of this "pre-in" country.
I should like to refer to two main topics. First, and more extensively, allow me to explain the ECB's view and my own view on the role of the euro as an international currency. After this I intend to make some brief comments on the key role that the euro and the Eurosystem are playing in the process of European economic integration.
Before I begin, I should like to add that it goes without saying that the institutional position of the ECB - and therefore my own official position - concerning Denmark's entry to the euro area is one of strict neutrality. This is an issue which has to be decided by the Danish people, whenever and in whatever way they deem appropriate.
THE EURO AS AN INTERNATIONAL CURRENCY
The three basic functions of the euro
Every currency fulfils three functions: store of value, medium of
exchange and unit of account. Concerning the first function (store of
value), the euro is used and will increasingly be used as an investment and
financing currency by market players, and as a reserve currency by public
authorities. Regarding the second function of money (medium of exchange),
the euro is used and will increasingly be used as a payment or vehicle
currency for the exchange of goods and services and for currency exchange
itself. It will also have an official use as an intervention currency.
Finally, as regards the third function of any currency (unit of account),
the euro is used and will increasingly be used by economic agents as a
pricing or quotation currency and as a pegging currency by the authorities
responsible for exchange rate issues.
Let me give you some information about the present use of the euro in each of these areas. I shall first refer to the private use of the euro, after which I shall consider its official public usage.
The euro as a store of value
The available information seems to confirm that the euro already
plays a significant role as an investment and financing currency in
international financial markets. Without going into precise details (1),
regarding the international debt securities market (money market
instruments, bills and bonds), it can be said that in the first two
quarters of 1999 net international issues denominated in euro amounted to
EUR 83.9 billion, compared with EUR 74 billion for the US dollar and EUR
50.9 billion for former euro area national currencies and ECUs during the
same period of 1998. In other words, in the first two quarters of 1999 net
international issues of debt securities denominated in euro were 13.4%
higher than those denominated in US dollars, and 64.8% higher than those
denominated in former euro area national currencies and ECUs issued during
the same period of last year.
With regard to equity markets, the weight of euro area stock
exchanges in terms of capitalisation ranks a clear second, far behind the
United States.
As to the banking sector, the latest data show that, at the end DX
:>48@>2:0 ?;5=:8T- -#"+ !-+ 1999DXCODE.HTof March 1999, above 40% of
deposits and loans vis-а-vis non-residents were denominated in euro, with
the share of the US dollar almost as high.
The euro as a medium of exchange
As for the second function of money (medium of exchange), the euro
needs more time to develop as a payment currency for goods and services in
international trade and as a vehicle currency in the foreign exchange
markets. Although no precise data are available at this stage, the value of
world exports denominated in euro is not likely to differ significantly
from that of euro area exports. By contrast, the value of world exports
settled in US dollars is nearly four times as high as that of US exports.
This difference can easily be explained by the combined and reinforcing
effects of network externalities and economies of scale in the use of a
predominant international currency, as is the case with the US dollar.
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