The Eurosystem Reserves Management Service (ERMS)

ECB-UNRESTRICTED

Emily Witt ECB Central Banking Seminar 2019 Head of Division Financial Operations Services

The Eurosystem Reserves Management Services

(ERMS)

5 July 2019 ECB-RESTRICTED Agenda FINAL

Overview of the presentation

11) Managing official foreign euro reserves

22) Key concepts and organisation

33) The services:

• cash and FX • securities and custody • settlement • account services

44) Customers, costs and benefits

1 www.ecb.europa.eu © ECB-RESTRICTED 1. Managing official euro reserves ca 20% of global reserves FINAL

Global reserve currencies %85 USD share 80 75 70 65 60 55 50 45 30 EUR All other currencies share 25 DMs 20 GBP 15 10 AUD 5 Other JPY CAD FF DGECUs CHF 0 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 Jun-17 Jun-14 Jun-11 Jun-08 Jun-05 Jun-02 Jun-99 Mar-18 Mar-15 Mar-12 Mar-09 Mar-06 Mar-03 Mar-00 Dec-15 Sep-16 Dec-12 Sep-13 Dec-09 Sep-10 Dec-06 Sep-07 Dec-03 Sep-04 Dec-00 Sep-01

Source: IMF, Federal Reserve Board Note: Unadjusted shares; annual data 1964-1999 and quarterly data 1999-2017; ECUs = European Currency Units (pre-euro basket currency), DMs = German Deutsche Marks, DG = Dutch Guilder, FF= French Franc.

2 www.ecb.europa.eu © ECB-RESTRICTED 1. Managing official euro reserves FINAL

Reserves management

Commercial banks Foreign official reserves in €

Some Eurosystem Central Banks

3 www.ecb.europa.eu © ECB-RESTRICTED 2. Key concepts of the Eurosystem Reserves Management Services (ERMS) FINAL

The ERMS services  Cash and FX services  Securities and custody

 Settlement  Account services

Single access point and a wide range of services • to support the management of customer reserve assets

Harmonised terms and conditions • to ensure common approach across the Eurosystem

Monetary policy neutrality • Some cash services are reversed in the market • Interest rates aligned with monetary policy and market rates

4 www.ecb.europa.eu © ECB-RESTRICTED 2. Organisation – Governance and execution of the ERMS FINAL

Governance, coordination and maintaining ERMS legal framework

Eurosystem service Individual service providers (ESP) providers (ISP) Full range of services Only some services

Execution of ERMS services

Central banks may provide other services outside of the ERMS 5 www.ecb.europa.eu © ECB-RESTRICTED 3. ERMS services overview FINAL

National Central Bank offer the following services

Cash & FX Securities & Settlement Account custody services

Cash overnight DvP/FoP Open/manage investment Purchase/sale accounts of securities Payments Fixed-term Statements

deposits SWIFT Processing of

Standing Purchase/sale corporate actions instructions of FX Confirmation

6 www.ecb.europa.eu © ECB-RESTRICTED 3. ERMS services – Cash and FX services FINAL

Cash Tier 1: • Limited amount (limit per NCB and per customer) • Remunerated at the higher of EONIA less 10 bps or the deposit facility rate (DFR)

Cash Tier 2: • Unlimited amount • Invested in the market at market rates minus 5bps

Unallocated / excess cash: • Unlimited amount • Remunerated at DFR minus 15 bps (currently -55 bps)

7 www.ecb.europa.eu © ECB-RESTRICTED 3. ERMS services - Cash and FX services FINAL

Fixed term deposits • From 1 day to 12 months • On a principal or agency basis • Collateralised by the bank where the funds are invested • Min size EUR 1.000.000 • Remunerated at market rates minus a small spread

Foreign exchange transactions Spot purchase or sale of euro against non-euro area G10 currencies (e.g. $, Yen) • executed on a principal basis • ensuring confidentiality

8 www.ecb.europa.eu ©

ECB-RESTRICTED 3. ERMS - Securities and custody services FINAL

Purchase / sale of securities • Securities in list of Eligible Marketable Assets (few exceptions e.g. ABS/MBS) • In secondary market, settlement T+2 • Pricing dependent on market conditions Single custody account • For a wide range of fixed-income euro-denominated securities government, covered bonds, agencies, supranationals, corporates Custody and settlement via • national and international central securities depositories • bilateral arrangements between Eurosystem National Central Banks Notification and processing of corporate actions Facilitation of Automatic Securities Lending Programmes (ASLPs)

ECB-RESTRICTED 3. ERMS – Settlement services FINAL

Settlement Services

• Delivery versus Payment settlement (DVP) • Free of Payment settlement (FOP) • Payments between different accounts • Instruction and confirmation of settlement via SWIFT (exceptionally other means)

• Managing cash and securities accounts • Providing statements (via SWIFT or other means) • Custody accounts available via (combination of): • central securities depositories (CSDs) • international central securities depositories (ICSDs) • bilateral agreement between home and correspondent NCBs

• Tailor-made standing instructions set up by the customer

• in addition to those charged for underlying services No fees • Examples: • reinvestment of proceeds from matured fixed term deposits • reinvestment of interest proceeds / security redemptions

Fees for services

• Cash services: no fees • Internal costs: - Custody fee: 0.2 basis points - Transaction fee for moving securities: €10 • External costs: - additional fees for recovering external costs, where applicable • Fees for the facilitation of Automated Securities Lending - variable fee structure depending on facilitation put in place

Customers outside Euro Area are eligible

• Any country (public authority or government agency) • Any central bank or monetary authority • Any international organisation

Customer must confirm  it complies with all EU and national laws for prevention of money laundering and countering the financing of terrorism  it is not involved in any form of money laundering or terrorist financing

Benefits for customers

 Safety - reliable, highly rated service providers  Confidentiality – information does not leave the Eurosystem  Flexibility via operations conducted for a focused group  Expertise of and entry to Europe’s financial markets  Domestic as well as cross-border custody and settlement services  Integrated package of euro reserve management services

More information can be found under: http://www.ecb.int/paym/erms/html/index.en.html

Questions and discussion