Case Study OBAR Bank
Hans Daamen - Rabobank and
Hans Pijl - DNB
Seminar Operational Monetary Policy
11-13 April 2007
Content OBAR Bank-case
• assessment and regularly re-assessment OBAR´s liquidity management strategy (including bids in MRO-tender and desired reserve requirements pattern)
• effect of frontloading ECB in MRO´s• calendar effects (in particularly end-of-month and special
weekends)• unexpected Target payment system incident• explaining spill-over effects EONIA-related positions on O/N euro
area market • spread EONIA rate (as unofficial operational target Eurosystem)
and minimum bidrate MRO• official interest rate decision by the Governing Council• fine-tuning operation on last day of the maintenance period
Start reserve maintenance period (MP) on 12 April
• Background information money market conditions
• MRO allotment BA plus € 1 billion
• How does Hans assess the frontloading policy of the
ECB?
• What is Hans´s strategy for OBAR´s reserve
requirements pattern for this MP´s?
First week MP
• liquidity conditions gradually tightened despite the loose
allotment in the first MRO
• reason autonomous factor forecast errors due to
calendar effect (i.e. Good Friday and the Easter
weekend)
Thursday 20 April
• Opening position -/- € 5 billion
• Preferred end-of-day position + € 5 billion + € 3,6 billion
• Overnights opens 3.83/84%
• 9.15h ECB 40 figures
Thursday 20 April
Release of ECB of ECB 40
On 19 April 2007:
Average reserve requirements : 142.6
Average holdings : 143.9
Current account holdings : 151.5
Marginal lending facility : 0.2
Deposit facility : 0.1
Thursday 20 April
After the ECB 40 figures
• Figures are as expected
• Some market participants disappointed
• Overnight rate trades up a basispoint to 3.80/3.81%
• Daily activities to fund the liquidity deficit and manage interest rate risk of OBAR Bank
Monday 24 April
• Start of the new week
• What does Hans think about the current market situation, and
to what extent does Hans re-assess it´s strategy for the day,
week and the current MP (reserve requirements pattern)?
Daily activities of OBAR dealers
Among others:
- Bidding to large customers
- Conversations with brokers
- Conversations with other banks
- Dollar / euro swaps
Could Hans elaborate more on the techniques of the euro/dollar
swap trade?
Monday 24 April
ECB tender announcement
• 15.30h variable rate with a benchmark allotment of € 275 billion
• Drain of € 16 billion should be no problem for the market
• What is Hans´s strategy for OBAR´s reserve requirements pattern for the coming MP?
Monday 24 April, end of the day
• Technical TARGET problems in Germany
• Stop sending for Germany
• No payments from and to Germany possible
• 20.00h Late closing of TARGET
• OBAR Bank is short € 1 billion (€ 4 billion instead of € 5
billion)
• EONIA fixed at 3.90%
Tuesday 25 April, opening
• Opening position again -/- € 5 billion
• Overnights trades at 3.87/89%
• Rumors of large use of deposit facility
• Italian banks complain about tighter liquidity
• 1-week EONIA offered at 3.83%
• Waiting for ECB 40
• What does Hans think about the current market situation and
what should Hans ideally do in the coming MRO tender?
ECB 40 on Tuesday 25 April
Average reserve requirements : 142.6
Average holdings : 143.5
Current account holdings : 134.5
Marginal lending facility : 2.5
Deposit facility : 15.5
Friday 28 April, after ECB 40
• Overnight trades 3.87/89%
• Light trading
• OBAR dealers are not lending overnight deposits
• Could Hans give additional and more structural reasons for the
current high and persistent spread between the EONIA rate
and the minimum bid rate of the MRO?
Thursday 4 May
• Governing Council official interest rates hike decision by 25 bp to 4.00%.
• Could Hans give an indication what the effect of Eurosystem´s
official interest rates hike on the current O/N rate is? How does
this effect in the current operational framework (as from
March 2004) compare to the old operational framework (before
March 2004)?
Friday 5 May
• this morning trading started around 3.83/84%
• liquidity desk manages to acquire around € 12 billion and ends
with a positive balance at DNB of € 5 billion. The EONIA is
fixed at 3.85%.
Monday Morning 8 May
• After ECB40 - the market estimates an accumulated reserve surplus of € 40 billion.
• Two more trading days in reserve period• Liquidity situation should be okay, but with tendency on the
tight side.• Waiting for ECB 40• Expected balance for Friday € 142.0 billion• Expected liquidity surplus end mp € 24.7 billion• Overnight trades at 3.94%
• What should happen if the ECB does not announce that in case of continued imbalance due to autonomous factor forecast errors, ECB stands ready to conduct fine-tuning operation on last day of the reserve maintenance period?
Tuesday 9 May: last day of mp
• Trading starts at 3.77/78% choice
• Opening position OBAR Bank -/- € 5 billion
• ECB 40 at 9.15hCurrent account 141.4 billion Imbalance stays around € 12 billionPre-announcement fine-tuning opertion
Announcement fine tuning operation10.00h CET
• Fixed term deposits at fixed rate of 3.75%
• Maturity 1 day
• Maximum amount € 12 billion
• Bidding closes at 10.30h CET
• What do you think Hans will do? What does Hans do?
Announcement tender result
• Allotment € 10 billion (100%)
• Market not fully satisfied, but it can only blaim itself.
• What reasons could be mentioned for the lower than targeted allotment?
• Accumulated surplus now estimated at around € 29 billion.
• Could Hans elaborate on the market mechanism on a last day of the maintenance period?
Tuesday 9 May, end of the day
• End of the day some banks are looking for money and bid 3.75%
• EONIA fixed at 2.95%
• OBAR Bank fullfilled reserves and made a nice profit at the end of this maintenance period.
Case study OBAR Bank
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