New money market statistical reporting to strengthen Eurosystem’s analytical capacity
Since July 2016, the Eurosystem’s central banks have been providing information on euro area financial institutions’ money market operations on a daily basis. These data are fed into the Eurosystem’s new MMSR dataset, which make it possible to assess the current market situation and structural developments over time. In the current issue of its Monthly Report, the Bundesbank, which is the collection point for data submitted by institutions domiciled in Germany, has unveiled the initial MMSR results for Germany.
€67 trillion transacted annually
In the scope of MMSR, German institutions reported a total transacted amount of €67 trillion for the period from the beginning of July 2016 to the end of June 2017. According to the report, trading during this period was focused on secured transactions, which accounted for 46%. Examples of secured transactions include repos, where a borrower transfers securities as collateral to the lender for a fixed time period. Government bonds are usually posted as collateral. Roughly one security in two was issued in Germany.
Unsecured money market transactions, primarily deposits, overnight money or saving accounts, made up 27% of the trading volume. Foreign exchange swaps accounted for the remaining 27%. In these transactions, market participants exchange a pair of currencies for a pre-defined period of time.
Unsecured transactions in the majority
Unlike for amounts transacted, unsecured transactions are in the majority when measured in terms of the number of transactions, accounting for roughly two-thirds of all transactions. "
This is due to the high proportion of smaller reporting agents, which were active in greater numbers in the unsecured market", explain the Bundesbank's experts.
The Bundesbank reports that the vast majority of unsecured transactions occur within Germany. Interbank trading is a minor factor here; trading with what are known as non-financial corporations accounted for a larger share. Institutions settled most of their secured transactions and foreign exchange swaps with non-resident counterparties, however, with most of these being located outside the euro area.
More targeted design of monetary policy
For Eurosystem central banks, the knowledge to be gained from the new statistics is highly relevant. To quote from the Monthly Report: "
The data collected under MMSR open the door to a comprehensive, daily and granular insight into the activities on, and structure of, the euro money market". MMSR makes it possible to systematically assess the functional ability of, and dynamics of change in, the money market and to detect structural change earlier than before. "T
he new MMSR framework will thus strengthen the Eurosystem’s analytical capacity," the Bundesbank’s experts note, before going on to add,
"Given the overriding importance of the money market in the monetary transmission process, the statistics provide a considerably improved basis for a more targeted design of the monetary policy toolkit in future."
New statistics reflect Germany’s unique banking landscape
The Eurosystem’s MMSR dataset is taken from a sample survey in which the currently 52 largest financial institutions in the euro area are required to report their money market transactions to their national central bank or the European Central Bank. These include 14 institutions domiciled in Germany, which report their data to the Bundesbank.
In order to accurately reflect the unique structure of Germany’s banking system, with its numerous small institutions, the Bundesbank has expanded the group of reporting agents. The main criteria are institutions’ total assets and whether or not they are connected to the TARGET2 large-value payment system. This means that information on money market transactions provided by a total of currently 128 institutions is incorporated into the statistics. These institutions include not only the largest institutions but also savings banks and cooperative banks, as well as regional banks.
The Bundesbank believes that the additional data add value to analyses of the money market. According to the Monthly Report, the data indicate that the inclusion of additional institutions – with their variety of business models – could deliver "much deeper knowledge".
Detecting structural change
The Bundesbank’s experts are looking to obtain important insights from changes caused by an evolving monetary policy framework, in which market participants’ actions are currently being driven largely by ample excess liquidity and negative interest rates. "
With the aid of MMSR, it will be possible in future to identify the extent to which money market activities are adapting to an evolving monetary policy setting".
According to the Bundesbank, MMSR will be used in future to not only analyse and assess the state of the euro money market but also so that the Eurosystem can provide a reference interest rate.