2009 ANNUAL REPORT ANNUAL REPORT 2009 2, boulevard Royal – L-2983 Luxembourg – Tel.: +352 4774-1 – Fax: +352 4774-4910 – [email protected] – www.bcl.lu BANQUE CENTRALE DU LUXEMBOURG ANNUAL REPORT 2009 TABLE OF CONTENTS THE GOVERNOR'S Message 1 1 THE ECONOMIC AND FINANCIAL SITUATION 6 1.1 The economic situation at the international level 6 1.1.1 Short-term interest rates and monetary policy decisions 6 1.1.2 Long-term government bond yields 7 1.1.3 Stock markets 9 1.1.4 Foreign exchange markets 9 1.1.5 Consumer prices 10 1.1.6 Output, demand and labour market developments 11 1.1.7 External Trade 13 1.1.8 Balance of Payments 14 1.2 Economic situation in Luxembourg 15 1.2.1 Prices and costs 15 1.2.1.1 Consumer prices 15 1.2.1.2 Industrial producer prices 19 1.2.1.3 Construction prices 20 1.2.2 Sectoral developments 22 1.2.2.1 Industry 22 1.2.2.2 Construction 22 1.2.2.3 Trade and other sectors 23 1.2.3 Consumer survey 23 1.2.4 Economic growth 24 1.2.5 Financial sector 27 1.2.5.1 Credit institutions' balance sheets 27 1.2.5.2 Retail interest rates in Luxembourg 33 1.2.5.3 Employment in the banking sector 35 1.2.5.4 Credit institutions' profit and loss accounts 35 1.2.5.5 Undertakings for collective investment 38 1.2.5.6 Money market funds 40 1.2.6 The Bank Lending Survey 43 1.2.7 The Luxembourg Stock Exchange 45 1.2.8 The Labour market 46 1.2.8.1 Employment 46 1.2.8.2 Unemployment 48 1.2.8.3 Labour costs 50 1.2.9 External Trade 52 1.2.10 Balance of payments 53 1.2.11 Macroeconomic projections 54 1.2.12 Public finances 58 2 THE BCL'S OPERATIONS 74 2.1 Monetary Policy Operations 74 2.1.1 Open-market operations 74 2.1.1.1 Main refinancing operations (MRO) in 2009 74 2.1.1.2 Longer-term refinancing operations (LTRO) in 2009 76 2.1.1.3 Fine tuning operations in 2009 79 2.1.2 Standing facilities 80 2.1.3 Minimum reserves 80 2.1.4 Temporary currency auction facilities 81 2.1.5 The covered bond purchase programme 82 2.2 Foreign exchange reserves management by the BCL 82 2.3 Management of the BCL's assets 83 2.3.1 Institutional structure 83 2.3.2 Risk control 84 2.3.3 Conceptual framework 84 2.3.4 Structure of portfolios 85 2.4 Banknotes and coins 86 2.4.1 Production of banknotes and coins 86 2.4.2 Circulation of banknotes and coins 86 2.4.2.1 Euro banknotes and coins 86 2.4.2.2 Luxembourg franc banknotes and coins 89 2.4.3 Handling of banknotes and coins 90 2.4.4 Fighting counterfeiting 90 2.4.5 Numismatic issues 90 2.5 Developments in the area of statistics 91 2.5.1 Money and banking statistics 91 2.5.2 External statistics 91 2.5.3 Economic and financial statistics 92 2.5.4 Other statistics 92 2.6 Payments and security settlement systems 92 2.6.1 TARGET2-LU 92 2.6.2 Retail payments in Luxembourg 95 2.6.3 The general framework of eligible collateral in the Eurosystem credit operations 97 2.6.3.1 The list of eligible assets 97 2.6.3.2 Eurosystem as a user of securities settlement systems 98 2.6.4 Correspondent Central Banking Model (CCBM) 100 2.6.5 The Eurosystem's future management of collateral 101 2.7 Financial stability 101 2.7.1 Macro-prudential supervision 101 2.7.2 Micro-prudential Supervision 104 2.7.2.1 Liquidity Supervision 104 2.7.2.2 Oversight 105 3 EXTERNAL ACTIVITIES 110 3.1 Activities with the International Monetary fund (IMF) and other international organisations 110 3.2 Activity at the European level 111 3.2.1 Contribution at the ECB decision-making bodies 111 3.2.2 The enlargement of the euro area 112 3.2.3 The economic and financial committee (EFC) 112 3.2.4 The Committee on Monetary, Financial and Balance of Payments Statistics 112 3.3 National Activities 113 3.3.1 Legal developments 113 3.3.1.1 Treaty of Lisbon 113 3.3.1.2 Payment services, payment and securities settlement systems and payment instruments 113 3.3.1.3 Regulatory power of the BCL 115 3.3.1.4 Independent auditor's mandate 115 3.3.1.5 Share capital increase of the BCL 115 3.3.1.6 Legal rate of interest 115 3.3.2 External committees 116 3.3.2.1 The Economic Committee (Comité de conjoncture) 116 3.3.2.2 The Consumer Price Index Commission (Commission de l'indice des prix à la consommation) 116 3.3.2.3 The Committee "Comptabilité bancaire" 116 3.3.2.4 The Higher Council for Statistics of Luxembourg 116 3.3.2.5 The XBRL Luxembourg asbl 116 3.3.3 BCL Committees 117 3.3.3.1 The Statistics committee 117 3.3.3.2 The Monetary and banking statistics consultative commission 117 3.3.3.3 The Balance of payments statistics consultative commission 117 3.3.3.4 The Economic and financial statistics consultative commission 117 3.3.3.5 The Lawyers' committee (Comité des Juristes) 117 3.3.3.6 The Market operations commission 118 3.3.3.7 The Operational Crisis Prevention Group (OCPG) 118 3.3.4 BCL Research Programme 118 3.3.5 Training at the BCL 118 3.3.6 External events 119 3.3.6.1 Conferences and international meetings 119 3.3.6.2 Bilateral relations 120 3.3.6.3 Relations with the Luxembourg Parliament 121 3.4 Communication Activities 121 3.4.1 Annual reports 121 3.4.2 Periodical Bulletins 121 3.4.3 Working papers 121 3.4.4 The BCL's website 121 3.4.5 The library 121 3.4.6 Press relations 122 4 THE BCL AS AN ORGANISATION 126 4.1 Structure of the BCL 126 4.1.1 The Council 126 4.1.2 The Executive Board 127 4.2 Corporate Governance 129 4.2.1 The internal control system 129 4.2.2 External control 130 4.2.3 Code of Conduct 130 4.3 Eurosystem Services 131 4.3.1 The Eurosystem Procurement Coordination Office (EPCO) 131 4.4 The BCL staff 132 4.4.1 Quantitative evolution 132 4.4.2 Management of human resources and training 133 4.4.3 The Pension Fund 133 4.5 Facilities 134 4.6 Internal finance 134 4.7 Budget 135 4.8 Internal Audit activities 136 4.9 Financial statements as at 31 December 2009 136 4.9.1 Key figures 137 4.9.2 Report of the Independent Auditor 137 4.9.3 Balance sheet as at 31 December 2009 139 4.9.4 Off-balance sheet as at 31 December 2009 141 4.9.5 Profit and loss account for the year 2009 141 4.9.6 Notes to the financial statements as at 31 December 2009 141 5 ANNEXES 166 5.1 List of BCL regulations published in 2009 166 5.2 List of BCL circulars published in 2009 167 5.3 List of BCL publications published in 2009 167 5.3.1 BCL Bulletins 167 5.3.2 BCL Annual Reports 167 5.3.3 BCL Working Papers 167 5.3.4 BCL Brochures 168 5.3.5 Publications and external presentations of BCL Staff 168 5.4 European Central Bank publications 169 5.5 List of monetary, economic and financial statistics 169 5.6 List of Abbreviations 171 5.7 Glossary 173 BOXES: 1 THE ECONOMIC AND FINANCIAL SITUATION Box 1.1: 20 Price and Cost Competitiveness – recent developments and perspectives for 2010-12 Box 1.2: 26 Potential Output – A very gradual exit from the crisis Box 1.3: 31 Bank deleveraging and the impact on loan supply in Luxembourg Box 1.4: 41 The evolution of credit to households and non-financial corporations Box 1.5: 51 On the interest to differentiate social contributions in Luxembourg Box 1.6: 62 Impact of the 2009 fiscal stimulus Box 1.7: 63 Impact of the fiscal consolidation announced on 5 May 2010 Box 1.8: 67 Long-term sustainability of public finances in Luxembourg: an appraisal after the con- solidation measures announced on 5 May 2010 2 THE BCL'S OPERATIONS Box 2.1: 103 The reform of the European financial supervisory architecture THE GOVERNOR'S Message The euro area GDP decreased by 4.1% in 2009. The economic recovery took hold ever since, but it will probably be characterised by low and quite volatile rates of growth. In Luxembourg, GDP declined by no less than 3.4% in 2009, which has been the worst result since 1975. The recession lasted five quarters, from the second quarter of 2008 to the second quarter of 2009, and real GDP decreased by 7% over this period. The discrepancy with respect to the trend growth rate observed from 1960 to 2007 therefore amounted to more than 10% during this phase. The revival recorded during the second half of 2009 and the positive impetus observed at the beginning of 2010 augur a GDP growth rate between 1.8 and 2.8% in 2011 and between 2.5 and 3.9% in 2012.