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Risks in the financial system 2011-Swedish Financial Supervisory Authority- Finansinspektionen
November 15, 2011--Sweden has remained relatively stable in a turbulent period but during this time the risk level in the Swedish financial system has also risen. The uncertainty in surrounding markets has meant that banks’ liquidity risks and the impact of low interest rates on life insurance undertakings remain in focus. Finansinspektionen also believes there is a risk that the sale of complex products to consumers will increase.
Uncertainty in the global economy increased during 2011 and the situation in several European companies deteriorated. This development has meant that banks’ liquidity risks are still in focus. During this time, however, the Swedish banks have handled the turbulence better than many European banks thanks to their strong capitalisation and Sweden’s strong government finances. The current financial turbulence demonstrates that banks and authorities still have a need for tools that will help them handle this kind of uncertainty.
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Source: Finansinspektionen:
Antitrust: European Commission Makes Standard & Poor's Commitments To Abolish Fees For Use Of US International Securities Identification Numbers Binding
November 15, 2011-- - The European Commission has made legally binding commitments offered by Standard & Poor's (S&P) to abolish the licensing fees that banks pay for the use of US International Securities Identification Numbers (ISINs) within the European Economic Area (EEA)1.
Moreover, for direct users, information services providers (ISPs) and service bureaus (i.e. outsourced data management service providers), S&P committed to distribute the US ISIN record separately from other added value information, on a daily basis for USD15.000 per year, to be adjusted each year in line with inflation.
ISINs are key identifiers for securities, allocated and distributed by national numbering agencies (NNAs). They are essential for managing securities and reporting. The Commission had concerns that S&P, which is the only NNA for US ISINs, may have charged unfairly high prices for their use and distribution in Europe, in breach of EU antitrust rules on the abuse of a dominant market position (see MEMO/09/508). The Commission is satisfied that the commitments, revised in light of observations received in the course of a market test (see IP/11/571), are suitable to solve the competition concerns.
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Source: EUROPA
Frequently asked questions: legislative proposal on credit rating agencies (CRAs)
November 15, 2011--I. GENERAL CONTEXT AND APPLICABLE LAW
1. What is a credit rating?
A credit rating is an opinion issued by a specialised firm on the creditworthiness of an entity (e.g. an issuer of bonds) or a debt instrument (e.g. bonds or asset-backed securities). This opinion is based on research activity and presented according to a ranking system (e.g. AAA, BBB. For full list, please refer to the annex attached to this memo.)
2. What is a credit rating agency?
A credit rating agency (CRA) is a service provider specialised in the provision of credit ratings on a professional basis. The three biggest rating agencies are Standard & Poor's, Moody’s and Fitch. They cover approximately 95% of the world market. Smaller rating agencies make up the remaining part. For a list of all European CRAs already registered under the CRA Regulation, see:
http://www.esma.europa.eu/popup2.php?id=7692
3. Why do we need to regulate credit rating agencies?
CRAs have a major impact on today's financial markets, with rating actions being closely followed and impacting on investors, borrowers, issuers and governments: e.g. sovereign ratings play a crucial role for the rated country, since a downgrading has the immediate effect of making a country's borrowing more expensive. A downgrading also has a direct impact for example on the capital levels of a financial institution.
The financial crisis and recent developments in the context of the euro debt crisis have revealed serious weaknesses in the existing EU rules on credit ratings. In the run up to the financial crisis, CRAs failed to appreciate properly the risks inherent in more complicated financial instruments (especially structured financial products backed by risky subprime mortgages), issuing incorrect ratings that were far too high.
The market for structured finance products grew rapidly, and CRAs were happy to both advise the issuer on the design of these innovative structures and afterwards rate them. These conflicts of interest were poorly managed, contributing further to rating inflation.
The 2008 crisis highlighted how far many of these instruments had been overrated. The large majority of the ratings that large CRAs made on instruments linked to subprime in 2006 had to be downgraded between mid-2007 and mid-2008 causing substantial losses for investors.
In this context a number of legal proceedings have been launched in particular in the US by investors accusing CRAs of issuing misleading ratings.
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Source: Europa
World Bank Projects Sluggish Growth for the South East European Economies in 2011 and 2012
While the region has made significant progress over recent years, it is at risk from the effects of a further global slowdown and needs to adopt policies that support stability and longer term growth
November 15, 2011 – While a global slowdown and recent turbulence in the Eurozone have shaken economies of the six countries in South East Europe (SEE6)[1], their deeper integration with the European Union (EU) remains the best long term prospect for their growth, according to the new World Bank “South East Europe Regular Economic Report” (SEE RER), released today. This is the first of a series of regular reports which will come out semi-annually.
Our projections are for the growth in this region of 2.5 percent in 2011 and 2.1 percent in 2012,” says Ron Hood, Lead Economist in the World Bank’s Poverty Reduction and Economic Management Sector Unit in the Europe and Central Asia region and lead author of the report. “However, even these modest growth projections assume that the Eurozone crisis is solved in an orderly manner. Should the crisis worsen, economic growth in these countries could be much worse.”
The effects of a further global slowdown and the prolonged uncertainties around the Eurozone crisis will influence SEE6 economies through trade, foreign direct investment (FDI), foreign banks, and remittances, according to the report. All these transmission channels would be affected by deeper economic and financial tensions in the EU and the Eurozone.
Trade with the EU is a key driver of exports and overall economic growth for SEE6 countries, amounting to between 30 percent and almost half of their GDP. In 2010, 58.2 percent of total SEE6 exports were to the EU, with the lion’s share going to Italy and Germany. After a drop by 14.7 percent in 2009, exports marked a robust growth by 20 percent in 2010, peaked at 29.7 percent in the first quarter of 2011 year on year, and have subsequently slowed. Imports have a similar dynamics but with a deeper decline in 2009 and a more muted recovery.
view World Bank report-South East Europe Regular Economic Report
Source: World Bank
September 2011 compared with August 2011-Industrial production down by 2.0% in euro area
Down by 1.3% in EU27
November 14, 2011--In September 2011 compared with August 2011, seasonally adjusted industrial production1 fell by 2.0% in the euro area2 (EA17) and by 1.3% in the EU272.
In August3 production rose by 1.4% and 1.0% respectively.
In September 2011 compared with September 2010, industrial production increased by 2.2% in both zones.
These estimates are released by Eurostat, the statistical office of the European Union.
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Source: Eurostat
Euro Finance Week Frankfurt/Main - Speech Reto Francioni
November 14, 2011--Ladies and Gentlemen:
First, I wish you a pleasant morning and an inspiring day. From what I have
seen, productive dialogue seems to be taking place everywhere.
I am pleased to be able to speak to you today. In my talk, I would like to address three aspects of competitiveness of exchange operators in the context of the
current regulatory debate:
Firstly, the indisputable advantages the planned merger between Deutsche
Börse and NYSE Euronext will have for our city as a financial center;
Secondly, the advantages for all other stakeholders; and
Thirdly, the consequences for competition on the derivatives market. [Position as a financial center] On the first point: The merger between Deutsche Börse and NYSE Euronext will reinforce Frankfurt’s position as a financial center, it will reinforce Germany’s position as a financial center, and it will reinforce Europe’s position as a financial center. It’s an answer to structural changes in global competition among exchange operators and providers of over-the-counter trading platforms. The stock markets are exhibiting a clear trend toward Europeanization of trading and the next step, globalization of trading. The derivatives market, market data and post-trading functions are already global.
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Source: Deutsche Börse
EEX records rising volumes on the Natural Gas Derivatives Market - Incentive scheme still available until the end of the year
November 14, 2011--The volume on the Natural Gas Derivatives Market of the European Energy Exchange (EEX) is increasing further. From the introduction of the incentive scheme on 1 August 2011 until 11 November 2011, a total of 6,144 contracts was traded on the EEX Derivatives Market for natural gas in the GASPOOL and NCG market areas (as against 1,960 contracts traded in the same period in the previous year).
This corresponds to a trading volume of 13,354,701 MWh and, hence, almost four times the volume generated during the same period in the previous year (3,436,270 MWh).
“Through the incentive model for the Gas Derivatives Market, we are setting impulses for long-term trading”, emphasizes Oliver Maibaum, Managing Director Exchange. The premium has been paid out seven times since the introduction of the model. “The companies are trading higher quantities on the Gas Derivatives Market than before. In addition, the stable market making – i.e. daily quoting for both market areas (GASPOOL and NCG) – supports liquidity on the Gas Derivatives Market.
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Source: European Energy Exchange (EEX)
Europe’s largest banks have become too big to save
November 14, 2011--The financial fates of Europe’s banks and its governments are inextricably linked: because the banks are the primary source of funding for government deficits, government debt represents a large proportion of the asset base of most eurozone banks. Insolvency of one therefore threatens insolvency of the other.
The prevailing narrative is that this symbiosis makes the largest European banks too big to fail, driving eurozone governments to provide massive capital infusions and guarantees to banks during financial crises. The truth, however, is that, given the level of eurozone government indebtedness and the relative size of Europe’s banks, Europe’s largest banks are now too big to save.
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Source: FT.com
Italy Imposes Ban on ‘Naked’ Short Selling of Shares, Financial Times Says
November 12, 2011--Italy imposed a ban on so-called naked short selling of all Italian securities, the Financial Times reported, citing a statement from Consob, the nation’s securities market watchdog.
The ban will apply to foreign and domestic investors irrespective of where Italian-regulated shares are traded, the newspaper said. The measure will take effect Dec. 1, lasting for the foreseeable future, and could be modified or withdrawn depending on market conditions, according to the report.
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Source: Bloomberg
Euro area securities issues statistics: September 2011
November 11, 2011--The annual growth rate of the outstanding amount of debt securities issued by euro area residents was 3.3% in September 2011, the same as in August. For the outstanding amount of quoted shares issued by euro area residents, the annual growth rate was 1.9% in September 2011, the same as in August.
New issuance of debt securities by euro area residents totalled EUR 1,010 billion in September 2011
(see Table 1 and Chart 1). Redemptions stood at EUR 1,005 billion and net issues amounted to EUR 12
billion (see Table 1). 1 The annual growth rate of outstanding debt securities issued by euro area
residents was 3.3% in September 2011, the same as in August (see Table 1 and Chart 3).
As regards the sectoral breakdown, the annual growth rate of outstanding debt securities issued by nonfinancial corporations decreased from 5.3% in August 2011 to 5.0% in September (see Table 2 and Chart 4). For the monetary financial institutions (MFIs) sector, this growth rate increased from 1.9% in August 2011 to 2.3% in September. The annual rate of change of outstanding debt securities issued by financial corporations other than MFIs was -0.3% in September 2011, compared with -1.1% in August. For the general government, this growth rate decreased from 6.4% in August 2011 to 5.9% in September.
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Source: ECB
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