Circular BCL 2012/229 of 29 June 2012 — The Financing of Credit Institutions in United States Dollars

Luxembourg, 29 June 2012
To all credit institutions
Subject: The Financing of Credit Institutions in United States Dollars

Dear Sirs, Madams,

Article 5(1a) of the Law of 5 April 1993 on the financial sector requires credit institutions to have effective processes for detecting, managing, controlling, and reporting the risks to which they are or could be exposed.

This circular aims to clarify the implementation of this article regarding risks related to financing in United States dollars ("USD").

Section I. Introduction

1. On 22 December 2011, the General Board of the European Systemic Risk Board (ESRB) adopted Recommendation ESRB/2011/2 on the financing of credit institutions in United States dollars 1. This circular implements Recommendation ESRB/2011/2 at the level of Luxembourg credit institutions.

2. In accordance with CSSF Circular 07/301, credit institutions must reflect material USD funding and liquidity risks in their ICAAP report.

Section II. Scope

3. This circular applies to all Luxembourg credit institutions on an individual basis and, where applicable, (sub-)consolidated basis.

4. Banks apply this circular in a manner proportionate to the nature, scale, and complexity of their activities and organization regarding their USD financing.

1 The recommendation, as published in the Official Journal of the European Union (2012/C 72/01), is reproduced in the annex to this circular. It is also available on the ESRB website (www.esrb.europa.eu).

CIRCULAR BCL 2012/229
CIRCULAR CSSF 12/537

Circular BCL 2012/229 page 2/2
Circular CSSF 12/537

Section III. Regulatory Requirements

Sub-section III.A. Internal Governance

5. Credit institutions must detect, manage, control, and report internally their USD funding and liquidity risks. Particular attention must be paid to risks related to:
   a) maturity mismatches between USD resources and uses; b) funding concentrations by counterparty category, with a focus on short-term counterparties; c) the use of USD currency swaps; d) intragroup exposures.

6. Credit institutions must implement strategies and policies defining their tolerance for USD liquidity and funding risks. They ensure compliance with this tolerance, which must remain within the bank's capacity to support and manage the underlying risks.

Sub-section III.B. Emergency Funding Plans

7. Credit institutions have emergency funding plans that:
   a) provide for management measures to address a shock affecting USD funding; b) are based on a feasibility study of the measures mentioned in a) in the event of simultaneous implementation by more than one credit institution; c) examine available emergency funding sources in the event of a reduction in supply from several counterparty categories.

Section IV. Entry into Force

8. This circular enters into force with immediate effect.

Please accept, Sirs, Madams, the assurance of our distinguished sentiments.

BANQUE CENTRALE DU LUXEMBOURG
The Directorate

COMMISSION DE SURVEILLANCE DU SECTEUR FINANCIER The Directorate

Annex: Recommendation of the European Systemic Risk Board of 22 December 2011 on the financing of credit institutions in United States dollars (ESRB/2011/2)

I
(Resolutions, recommendations and opinions)
RECOMMENDATIONS
EUROPEAN SYSTEMIC RISK BOARD
RECOMMENDATION OF THE EUROPEAN SYSTEMIC RISK BOARD of 22 December 2011 on the financing of credit institutions in United States dollars (ESRB/2011/2) (2012/C 72/01)

THE GENERAL BOARD OF THE EUROPEAN SYSTEMIC RISK BOARD,

Having regard to Regulation (EU) No 1092/2010 of the European Parliament and of the Council of 24 November 2010 on macro-prudential oversight of the financial system in the European Union and establishing a European Systemic Risk Board ( 1 ), and in particular Article 3(2)(b), (d) and (f), and Articles 16 to 18 thereof,

Having regard to Decision ESRB/2011/1 of the European Systemic Risk Board of 20 January 2011 adopting the Rules of Procedure of the European Systemic Risk Board ( 2 ), and in particular Article 15(3)(e) and Articles 18 to 20 thereof,

Having regard to the opinions of the private sector stakeholders concerned,

Whereas:

(1) The United States dollar is an important funding currency for credit institutions in the Union, which obtain most of their United States dollar funding on interbank markets.

(2) The assets and liabilities of Union credit institutions denominated in United States dollars present a substantial maturity mismatch, with short-term interbank funding being used to finance longer-term activities and assets; moreover, some counterparties exhibit volatile behaviour. The combination of maturity mismatch and investor volatility is a major cause of vulnerability.

(3) Tensions in United States dollar funding markets have been ongoing since June 2011, following the severe tensions recorded in 2008 which led to the establishment of swap arrangements between central banks to provide access to the United States dollar. These tensions generate major potential systemic risks, namely: in the short term, risks to banking liquidity and, in the medium term, risks to the real economy due to a reduction in United States dollar lending by Union credit institutions as well as to the solvency of these credit institutions if the deleveraging occurs at fire-sale prices.

(4) In recent years, credit institutions, central banks and supervisory authorities have put in place measures intended to mitigate general funding and liquidity risks; some of these measures have contributed to improving the United States dollar funding and liquidity positions of Union credit institutions. However, a more structured approach is necessary to avoid a resurgence of tensions in United States dollar funding markets.

(5) Micro-prudential tools must be strengthened, with the macro-prudential objective of preventing United States dollar funding of Union credit institutions from reaching tension levels equivalent to those observed during recent financial crises.

(6) Gaps in data available at Union level limit the ability to analyse the potential impact of United States dollar funding risks; it is therefore necessary to improve data quality.

10.3.2012 Official Journal of the European Union C 72/1

( 1 ) OJ L 331, 15.12.2010, p. 1.
( 2 ) OJ C 58, 24.2.2011, p. 4.

(7) Close monitoring at the banking sector and enterprise level would enable competent authorities to better understand the evolution of United States dollar funding and liquidity risks; this would also help them to encourage banks to take the necessary ex ante measures to limit excessive exposures and correct distortions affecting risk management. The measures recommended in this regard are consistent with Recommendation F of the ESRB of 21 September 2011 on foreign currency lending ( 1 ).

(8) One instrument for mitigating United States dollar funding risks is emergency funding plans, which aim to prevent the intensification of funding difficulties in extreme situations. Emergency plans could, however, in turn generate new systemic problems if they resulted in similar actions taken simultaneously by credit institutions.

(9) The European Systemic Risk Board (ESRB) will review progress made in the implementation of this recommendation in the second half of 2012.

(10) The annex to this recommendation contains an analysis of the systemic risks important for the financial stability of the Union resulting from the financing of Union credit institutions in United States dollars.

(11) This recommendation is without prejudice to the monetary policy mandates of central banks in the Union and the tasks entrusted to the ESRB.

(12) ESRB recommendations are published after the intention of the ESRB General Board to publish has been brought to the attention of the Council and the Council has had the opportunity to react,

HAS ADOPTED THIS RECOMMENDATION:

SECTION 1
RECOMMENDATIONS

Recommendation A — Monitoring of United States dollar funding and liquidity

National supervisory authorities are invited to:

1) closely monitor the United States dollar funding and liquidity risks taken by credit institutions, as part of their supervision of the overall funding and liquidity position of credit institutions. National supervisory authorities should particularly monitor:
a) United States dollar maturity mismatches; b) funding concentrations by counterparty category, with a focus on short-term counterparties; c) the use of United States dollar currency swaps (including cross-currency interest rate and currency swaps); d) intra-group exposures.

2) consider, before United States dollar funding and liquidity risk exposures reach excessive levels:
a) to encourage credit institutions to take measures to appropriately manage risks resulting from United States dollar maturity mismatches; b) to limit exposures, while avoiding a disorderly unwinding of current funding structures.

Recommendation B — Emergency funding plans

National supervisory authorities are invited to:

1) ensure that credit institutions include in their emergency funding plans management measures to address a shock affecting United States dollar funding, and have studied the feasibility of such measures in the event of simultaneous implementation by more than one credit institution. At a minimum, emergency funding plans should examine available emergency funding sources in the event of a reduction in supply from several counterparty categories;

2) assess the feasibility, at the banking sector level, of these management measures provided for in emergency funding plans. If simultaneous action by credit institutions is considered likely to generate potential systemic risks, national supervisory authorities are invited to consider measures to reduce these risks and their impact on the stability of the Union banking sector.

SECTION 2
IMPLEMENTATION

1. Interpretation

1. For the purposes of this recommendation, the following definitions apply:
a) 'credit institution': a credit institution as defined in Article 4(1) of Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions ( 2 ); b) 'Union credit institution': a credit institution authorised in a Member State under Directive 2006/48/EC; c) 'national supervisory authority': a competent authority or a supervisory authority within the meaning of Article 1(3)(f) of Regulation (EU) No 1092/2010; d) 'United States dollar funding': raising funds in the form of United States dollar denominated commitments.

2. The annex forms an integral part of this recommendation. In the event of a divergence between the annex and the main text, the main text shall prevail.

2. Implementation criteria

1. The following criteria apply for the implementation of this recommendation:
a) This recommendation concerns solely the United States dollar funding of Union credit institutions. b) Regulatory arbitrage should be avoided. c) The principle of proportionality should be duly taken into account in implementation, given the different systemic importance of United States dollar funding of credit institutions and taking into consideration the objective and content of each recommendation. d) Specific criteria for the implementation of Recommendations A and B are set out in the annex.

2. Addressees are invited to communicate to the ESRB and the Council the measures taken in response to this recommendation or to provide adequate justification in case of inaction. Reports must at least contain:
a) information on the content and timing of measures taken; b) an assessment of the functioning of measures taken from the perspective of the objectives of this recommendation; c) a detailed justification of any inaction or deviation from this recommendation, including any delays.

3. Monitoring timeline

1. Addressees are invited to communicate to the ESRB and the Council the measures taken in response to Recommendations A and B, or to provide adequate justification in case of inaction, by 30 June 2012.

2. National supervisory authorities may report in an aggregated form through the European Banking Authority.

3. The General Board may extend the deadline mentioned in point 1 where legislative initiatives are necessary to comply with one or more recommendations.

4. Monitoring and evaluation

1. The ESRB Secretariat:
a) provides assistance to addressees, including by facilitating coordination in reporting, providing appropriate templates and giving clarification on the modalities and timeline of monitoring where necessary; b) monitors follow-up by addressees, including by responding to their requests for assistance, and reports on the follow-up to the General Board through the Steering Committee within two months of the expiry of the monitoring deadlines.

2. The General Board evaluates the measures and justifications communicated by addressees and, where appropriate, determines whether this recommendation has not been followed and whether addressees have not provided adequate justification for their inaction.

Done at Frankfurt am Main, 22 December 2011.

The President of the ESRB
Mario DRAGHI

10.3.2012 Official Journal of the European Union C 72/3

ANNEX
RECOMMENDATIONS OF THE EUROPEAN SYSTEMIC RISK BOARD CONCERNING UNITED STATES DOLLAR FUNDING OF CREDIT INSTITUTIONS OF THE EUROPEAN UNION

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e) There exist (sometimes simultaneously) two conceptions: credit institutions emphasize that their conduct is dictated by a) a global diversification strategy in which they access the dollar market and then exchange these dollars for the currency they need; or b) a needs-matching strategy, implemented by assessing needs in a given currency, which are financed by issuing debt securities.

f) Supply factors: some US investors seek to profit from their investments in a context of low remuneration; and some declare that US money market mutual funds (MMMFs) have little ability to divert placements away from credit institutions in the European Union, insofar as banks — most of which rely on a solid base of depositors — and companies in the United States currently have relatively abundant liquidity.

I.2. The structural situation of credit institutions in the European Union

Overall, the dollar balance sheets of credit institutions in the European Union recorded significant growth in the years preceding the financial crisis. According to data published by the Bank for International Settlements (BIS), this trend has reversed since the crisis (Chart 1). This evolution appears to reflect the deleveraging process undertaken by EU credit institutions in the aftermath of the financial crisis, particularly regarding "legacy" assets.

Using data collected by the European Systemic Risk Board (ESRB), it is possible to analyze in depth the size of dollar balance sheets. In some countries, the asymmetry between dollar-denominated assets and liabilities is relatively low. In other countries, liabilities exceed assets, a situation consistent with market information indicating that some EU credit institutions tend to access dollar funding sources when the opportunity arises, within the broader context of diversifying their funding, and then conduct swap operations into other currencies. Dollar liabilities represent a little over 15% of total liabilities at the EU level.

Chart 1
Dollar positions (gross and net) of credit institutions in the European Union (in billions of US dollars) Source: BIS estimates, quarterly data.

I.3. Main uses (assets) and main sources (liabilities) of dollar funding

A more in-depth examination of the dollar assets held by EU credit institutions reveals that dollar-denominated funds serve four main functions: a) dollar loans to non-financial companies (for trade financing and projects), with limited exposure to the commercial and public sectors in the United States; b) interbank loans (unsecured and secured loans), which are generally short-term; c) deposits held with the Federal Reserve System; and d) market activities of EU credit institutions.

C 72/6 Official Journal of the European Union 10.3.2012 FR 012

Source: ESRB (see description of Model A in the Annex) and own calculations.
Notes: The reference date is 31 December 2010. However, for two countries, Malta and Sweden, the data is as of 30 June 2011. Group 1 includes data concerning Greece, Cyprus, and Malta, while Group 2 encompasses data relating to Belgium, Denmark, Spain, the Netherlands, and Austria.

With a few exceptions, EU credit institutions do not have a significant base of "retail" dollar deposits (which represent only 3% of total liabilities). The majority of funding is obtained on interbank markets, with repos, commercial paper, and certificates of deposit constituting the main instruments. Investors operating in the US money market carry out the bulk of placements made through commercial paper and dollar certificate of deposit issuance programs.

Data collected by the ESRB indicates that dollar funding obtained on the interbank market for unsecured and secured loans represents approximately one-third of the total interbank refinancing activities of EU credit institutions. This situation is partly explained by the high liquidity, compared to the rest of the world, of US interbank markets. This recourse to US interbank markets concerns in particular the very short-term segment. Approximately 75% of the interbank dollar funding of EU credit institutions has a maturity of less than one month (Chart 2). According to data from the European Banking Authority (EBA), the share of term funding with a duration of more than one year does not exceed 20% of total interbank dollar funding, regardless of the country.

Chart 2
Interbank dollar funding broken down by maturity and by country

I.4. Maturity profile of dollar-denominated assets and liabilities

While the dollar liabilities of EU credit institutions are essentially short-term, assets generally present a maturity structure characterized, logically, by a predominance of long-term maturities. Approximately one-third of dollar-denominated assets have a duration of more than one year. A comparison with the overall maturity structure of the balance sheets of EU credit institutions shows that maturity asymmetries between dollar assets and liabilities are more pronounced than those observed for all currencies combined.

Given macroeconomic concerns expressed within the euro area and globally, US investors further reduced the volume and maturities of their dollar funding in favor of non-US credit institutions in the second half of 2011. Refinancing rates applied to dollar funding on the unsecured interbank market decreased significantly for many EU credit institutions during the third quarter of 2011. The maturities of new dollar funding were noticeably shorter than those recorded during the second quarter of 2011. The market for long-term unsecured dollar debt is indeed no longer accessible to most EU credit institutions, with the exception of some Scandinavian and Northern European institutions, which managed to issue a significant volume of long-term dollar debt securities. Generally, investors seem to distinguish between credit institutions based on their country of origin.

10.3.2012 FR Official Journal of the European Union C 72/7

I.5. Liquidity buffers constituted by liquid assets

In December 2010, EU credit institutions included in the sample established by the ESRB held a stock of approximately 570 billion EUR in dollar-denominated assets as part of their overall rebalancing capacity (1). In total, this amount is equivalent to approximately 20% of total dollar liabilities, according to the broadest definition of overall rebalancing capacity. About two-thirds of these amounts were eligible as collateral for central banks. Liquid assets denominated in other currencies could be used to address a shock affecting the dollar position, depending, to some extent, on the functioning of foreign exchange markets.

However, during a financial crisis, only very liquid assets can be used effectively as liquidity buffers. If one considers only cash and reserves held at central banks (exceeding mandatory reserves) as well as unencumbered sovereign claims with a zero weighting deposited at central banks, the liquidity buffer constituted by liquid dollar assets decreases to 172 billion EUR for the sample of EU credit institutions under review.

I.6. Distribution of dollar liquidity providers

According to qualitative information collected by the ESRB, there are seven main categories of short-term dollar liquidity providers:
a) US money market mutual funds (MMMFs); b) monetary authorities, central banks, and sovereign wealth funds, which hold significant amounts of dollar assets; c) securities lending companies; d) US credit institutions holding significant dollar amounts, via the interbank market (generally very short-term) and through the foreign exchange swap market; e) large US companies; f) federal agencies for mortgage refinancing (US government-sponsored enterprises — GSEs) Fannie Mae and Freddie Mac; g) in addition to the main US funding sources, sporadic data indicates that EU credit institutions also turn to markets located outside the United States (primarily Asian markets) to raise dollar funds.

Most of these providers are particularly sensitive to perceived credit risk concerns, as evidenced by the behavior of US MMMFs in recent months. They account, according to estimates, for approximately 2% of the total liabilities of the entire EU banking system, but their share rises to 10% for certain EU credit institutions.

In recent months, top-tier US MMMFs have shortened the maturities of funding provided to credit institutions in several EU Member States, with the proportion of funding with a maturity of one month or less rising to approximately 70% in October-November 2011, at least for euro area credit institutions (Chart 3). Furthermore, they have also reduced their overall exposure to EU credit institutions. However, variations between May and November 2011 are very uneven from one country to another (Chart 4).

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(1) Rebasing capacity corresponds to the volume of funds a bank can obtain to meet its liquidity needs. A liquidity buffer is generally defined as the short-term segment of rebasing capacity in the perspective of "expected stresses." It must be available in full within a short defined period (the "survival period").

Chart 3
Maturity profile of US MMMF exposure to euro area credit institutions

Chart 4
Variations in exposure of top-tier US MMMFs to EU credit institutions between May and November 2011

Source: calculations by the US Securities and Exchange Commission (SEC) and the European Central Bank (ECB).

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Source: Bloomberg.

I.7. Market indicators

Major EU credit institutions rely heavily on US interbank markets to finance their dollar needs. Conversely, it appears that many second-tier institutions rely more on first-tier EU institutions and foreign exchange swap markets to obtain dollars. The cost of EUR/USD swaps — indicated by the EUR/USD basis swap (Chart 5) — reached a peak the day after the Lehman Brothers bankruptcy. After tightening significantly during the first four months of 2011, the EUR/USD basis swap widened again from early May. The intraday volatility embedded in the swap has increased since mid-June, reflecting market uncertainty regarding dollar funding conditions applied to EU credit institutions.

After the Lehman Brothers bankruptcy, the ECB strengthened the use of the dollar swap line established with the Federal Reserve System to provide dollar liquidity to Eurosystem credit institutions (Chart 6). The outstanding amount of dollar liquidity operations conducted by the ECB peaked at nearly 300 billion USD at the end of 2008.

Market information indicates that the existence of dollar swap lines between central banks relieves market participants, thereby supporting the functioning of foreign exchange swap markets, even when they are not solicited. This could mean that there is a moral hazard risk preventing EU credit institutions from turning to a more robust funding structure, although the pricing applied to these facilities is supposed, in part, to mitigate this risk. Box 1 presents a summary of the functioning of foreign exchange swap markets and initiatives taken in this area to improve their resilience.

Chart 5
EUR/USD Basis Swap

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Source: ECB.

Chart 6
ECB Use of the Swap Line Established with the Federal Reserve System

Outstanding ECB Liquidity Provision Operations

BOX 1: Functioning and Resilience of Foreign Exchange Swap Markets

Following the contraction of unsecured loans obtained on the interbank market at the beginning of the financial crisis, EU credit institutions had to rely more on secured funding (foreign exchange swaps and repos). This increased reliance on secured lending gradually weighed on these markets, particularly the foreign exchange swap market. After the Lehman Brothers bankruptcy, it became very difficult and very costly to obtain dollar funds via currency swaps (in October 2008, the three-month EUR/USD basis swap exceeded -200 basis points).

This widespread disorganization of dollar funding markets led to the establishment of swap lines between the Federal Reserve System and a number of central banks, including the ECB. At its highest level (end 2008), the total outstanding dollar liquidity lent to central banks by the Federal Reserve System reached approximately 550 billion USD, the majority of this amount being made available to European central banks (the ECB, the Bank of England, and the Swiss National Bank). For example, the outstanding dollar liquidity provided by the ECB to Eurosystem counterparties stood at nearly 300 billion USD at the end of 2008.

This figure is to be compared with reserves within the Eurosystem (in convertible currencies), amounting to 145 billion EUR at the end of 2008 (approximately 200 billion USD). Although some submissions may perhaps respond to opportunistic and/or precautionary motives, the scale of the dollar funding shortage was such that it would have been difficult, if not impossible, for central banks to finance the provision of such a volume of liquidity themselves (through their own reserves or by accessing the market). The swap agreements concluded between the Federal Reserve System and a number of central banks (the ECB, the Bank of England, the Swiss National Bank, the Bank of Canada, and the Bank of Japan) were reactivated in May 2010, when the sovereign debt crisis intensified, reassuring market participants that credit institutions located outside the United States would have access to dollar funding if needed.

The provision of dollar funds by central banks outside the United States helped restore the proper functioning of the market. The dollar basis swap (namely the spread between the implicit dollar rate in the EUR/USD swap and the USD Libor rate) decreased rapidly thereafter. Furthermore, the use of existing swap lines with the Federal Reserve System decreased from the peak reached at the end of 2008. Sporadic information and market reactions suggest that the foreign exchange swap market provided sufficient liquidity volume, allowing EU credit institutions to borrow in dollars against national currency.

Some documents prepared by central banks and market organizations highlight that the foreign exchange market demonstrated its resilience during the financial crisis, thanks to the Continuous Linked Settlement (CLS) system for foreign exchange transaction settlement and the increased use of Credit Support Annexes (legal documents regulating the management of collateral between two counterparties in a lending/borrowing transaction — CSA). European and US regulatory authorities are currently examining the appropriateness of subjecting foreign exchange swap operations to mandatory central clearing.

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The resilience of the foreign exchange swap market during periods of crisis is an important element for risk assessment. Two considerations argue for a certain degree of prudence in this regard. First, although no data is available, the spot reactions of market participants suggest that the magnitude of the dollar shortage and the demand for dollar loans through the foreign exchange swap market have thus far been lower than during the period immediately following the Lehman Brothers bankruptcy. Second, the existence of swap lines between the Federal Reserve System and European central banks offers a "safety net" that reassures operators.

The recent coordinated action by central banks aimed at addressing tensions in dollar funding markets (namely, the reduction of rates and the continuation of three-month tender operations) has resulted in some improvement in the market conditions offered to credit institutions in the European Union. The basis swap decreased moderately, but the USD Libor rate remained unchanged. In addition to general risk aversion, two elements would have contributed to persistent tensions: the stigma attached to participation in three-month tender operations and the fact that large clients of credit institutions (pension funds and UCITS, companies) do not have access to central bank facilities. Consequently, they remain dependent on foreign exchange swap markets for hedging purposes in a context characterized by the reluctance of credit institutions to play the role of market makers.

II. RISKS ARISING FROM THE USE OF DOLLAR FINANCING

The ESRB has examined two main channels of risk related to the use by European Union credit institutions of dollar financing and the asymmetry of maturities: short-term liquidity risk and medium-term risk related to the impact on the real economy of the European Union caused by changes in business models linked to tensions in dollar financing.

II.1. Short-term liquidity risk

Dollar liquidity constraints have generated numerous coordinated actions by central banks since 2008. These tensions reflect the structure of dollar financing for European Union credit institutions, the role of the dollar in the global financial system, and the current situation in the markets.

Overall, this could mean that European Union credit institutions relying on short-term interbank dollar refinancing show signs of fragility. In particular:

a) Limited "stable" financing: European Union credit institutions have little retail dollar financing available within the European Union.

b) Short-term profile: As explained in Section I, the interbank dollar refinancing of European Union credit institutions is generally very short-term.

c) Foreign investors generally withdraw more strongly than domestic investors during a crisis: there is a risk that investors will redirect their operations to the national market in a crisis scenario or that they will make less distinct distinctions between foreign companies in which they have invested than domestic investors would. In particular, evidence from the crisis and more recent data suggests that certain categories of US investors tend to adopt similar behaviors and are particularly receptive to alarmist press headlines, making European Union credit institutions sensitive to funding tensions that appear suddenly, especially when there is concentration in the categories of funding providers. This element is important because dollar interbank refinancing markets essentially provide short-term liquidity (less than three months).

d) The role of US money market funds: these tend to react quickly and collectively to risks highlighted by the press. The recent crisis affecting markets, caused by concerns about sovereign risk, seems to have once again prompted some US investors engaged in European Union credit institutions to withdraw their funds or reduce the duration of their loans since mid-2011. In particular, US money market funds are likely to continue withdrawing from European Union credit institutions for several reasons. These may stem from structural changes in their financing activity generated by a tightening of the regulatory framework. Reforms decided by the SEC entered into force in May 2010, further limiting the duration of loans by US money market funds. A second series of reforms is under discussion, containing proposals to oblige UCITS to abandon the constant net asset value (CNAV) pricing model in favor of variable net asset value. Another option lies in the decision of US regulatory authorities to oblige these companies to hold risk absorption buffers if they continue to implement a CNAV-based business model. The holding of such safety buffers could strengthen the resilience of money market funds, but it is also likely to render their business model unprofitable in the long term. Other regulatory factors may impact the business model of US money market funds: notably the repeal of regulations preventing US banks from offering interest-bearing savings products for checking accounts. The impact of these regulatory changes is likely to be amplified by any further downgrade of ratings within the European Union.

e) Quality of dollar assets: in the context of liquidity risk assessment, the EBA estimates that the quality of dollar assets constituting the liquid asset buffers of European Union credit institutions is lower than that of national currency assets and that there is a considerable exceptional risk for the funding markets of European Union credit institutions. The emergence of new unexpected problems encountered by US banks could also affect the dollar interbank market.

f) Dependence on foreign exchange markets: in a crisis scenario, if European Union credit institutions cannot meet short-term dollar needs by liquidating dollar assets, they will have to resort to spot foreign exchange markets or foreign exchange swap markets to convert liquid assets denominated in other currencies into dollars. This increases the number of markets (investors) that must function in a crisis scenario, although the ability to operate on many markets can also be considered a risk-mitigating factor. Since mid-2011, tensions in dollar interbank markets have spilled over into foreign exchange swap markets (increasing the cost of euro-dollar swap operations).

g) Time zone tensions: this phenomenon was observed during the crisis, when dollar funding providers were reluctant to lend before knowing their own liquidity position for the day, this information often being available in the middle of the day in the United States, i.e., at the time of European market closure.

h) Hoarding: companies and global investors are prone to hoard their funds in dollars during a financial crisis due to the role of the US currency as an international reserve currency.

i) Access for smaller European Union credit institutions: large European Union credit institutions operating internationally provide a portion of their interbank refinancing to smaller institutions, which have limited or no access to dollar funding markets. Consequently, problems encountered by large credit institutions can quickly spill over to the rest of the banking sector.

j) Sovereign risk concerns: markets distinguish between European Union credit institutions based on their rating and country of origin. Sovereign debt problems weigh on European Union credit institutions, particularly in countries where tensions have emerged in government bond markets, and their spread to credit institutions with high exposure to sovereign debt can generate tensions in funding in general and in dollar funding in particular.

An ESRB assessment based on data provided by national supervisory authorities reveals a significant dollar funding deficit for European Union credit institutions in a severe crisis scenario. Based on contractual dollar inflows and outflows, an approximate dollar funding deficit at three, six, and twelve months can be calculated. The table below presents a summary of the assessment results.

Table 1
Cumulative Dollar Funding Deficit
Amounts (in billions of euros) 3 months 6 months 12 months Cumulative funding deficit – 841 – 910 – 919 a) With prudent rebalancing capacity – 670 – 736 – 750 b) With eligible rebalancing capacity – 386 – 467 – 500 c) With full rebalancing capacity – 182 – 263 – 304

The first line indicates the cumulative funding deficit over the three periods, defined as the difference between dollar inflows and outflows. The main net element concerns very short-term maturities (less than three months), reflecting the short-term nature of dollar financing.

The next three lines present the magnitude of the deficit when the rebalancing capacity of European Union credit institutions is taken into account. Three measures of rebalancing capacity are used.

a) Prudent rebalancing capacity includes only cash and reserves held at central banks (exceeding mandatory reserves) as well as sovereign claims with zero weighting admitted as collateral by the central bank. This prudent measure therefore theoretically refers to the most liquid assets available to compensate for outflows in a crisis scenario.

b) Eligible rebalancing capacity consists of assets that would be admitted as collateral by central banks.

c) Full rebalancing capacity includes all assets defined as part of the rebalancing capacity, which can constitute a reasonable indication of the ability to compensate for outflows under normal conditions, but whose components are less liquid during periods of financial stress.

For comparison, the total amount of draws on the dollar swap lines established by central banks in 2008 stands at 550 billion USD. In addition, there are differences between national banking systems: if this method and data are used, the dollar shortage is relatively low in some countries and more significant in others. As indicated above, this is an approximate measure and other calculation methods can be used.

II.2. Medium-term impact on the real economy

Given the structure of dollar financing, there are a number of channels through which a shock affecting it could have chain effects, in the medium term, on the real economy, via credit institutions.

Overall, the ESRB's analysis shows that this factor can be significant; however, more in-depth studies are necessary to assess its potential impact before the existence of this channel alone justifies limiting dollar maturity asymmetries.

The main risk transmission channels identified by the ESRB are as follows.

a) The cost of financing for European Union credit institutions and the effects on the profitability of credit institutions. Some market information collected by the ESRB suggests that European Union credit institutions have tended to rely on dollar financing because it was generally less expensive to obtain it and then, if necessary, perform swaps into the required currency than to refinance directly in that currency. Any impact on profitability could currently compromise the ability of European Union credit institutions to grant loans to European businesses and households and/or make the transition to the Basel III framework (1) (hereinafter "Basel III") more difficult. Some very preliminary analyses of the potential cost conducted by the ESRB show that it is likely low. This would be the cost generated by extending the maturity of financing or resorting directly to financing in euros or sterling, rather than collecting dollars and performing a swap into these currencies. However, this analysis necessarily has limited scope given the quality and coverage of the data submitted to the ESRB; more in-depth analysis would be necessary before drawing definitive conclusions.

b) Availability of financing obtained by European Union credit institutions. Information from supervisory authorities indicates that many large European Union credit institutions have recently relied on the deep and broad dollar funding markets to finance the dollar activities of European companies (for example, active in aerospace, maritime transport, commodities, and international trade financing). There are concerns that any attempt to limit access to dollar financing could reduce the ability of European Union credit institutions to finance these assets and, consequently, to grant loans to non-financial companies. Other credit institutions outside the European Union that more easily access dollar financing may be able to take over these operations. But again, this phenomenon could carry the risk that they withdraw rapidly during a crisis ("national bias").

c) The impact of large-scale deleveraging, in which European Union credit institutions seek to sell dollar assets to repay dollar financing. This development could impact the availability of financing for the real economy, as well as the solvency of credit institutions if significant sales weigh on asset prices through daily mark-to-market valuation mechanisms. For example, market information currently indicates that investors expect a decrease in the price of dollar assets, as a number of European Union credit institutions are seeking to sell them. In fact, the sale of dollar-denominated assets or early repayments can also prove difficult if certain credit institutions decide to do so simultaneously, which carries a risk of chain effects. In addition, European Union credit institutions are likely to use other methods to reduce their dollar funding needs, for example by unwinding positions in the financial market or selling liquid assets.

II.3. Potential risk mitigation factors

In light of the problems encountered following the Lehman Brothers bankruptcy, European Union credit institutions and supervisory authorities have implemented measures aimed at mitigating funding and liquidity risks in general. European Union credit institutions have taken measures to improve their financing structures in recent years, and national central banks have provided dollar liquidity to ease tensions in dollar funding markets. The main factors likely to mitigate risks arising from short-term dollar financing seem to be the following.

(1) Cf. Basel Committee on Banking Supervision — "Basel III: A global regulatory framework for more resilient banks and banking systems", December 2010 (revised in June 2011); "Basel III: International framework for liquidity risk measurement, standards and monitoring", December 2010. Both documents are available on the BIS website at http://www.bis.org

a) Increase in the volume of dollar liquidity: The cash holdings of European Union credit institutions deposited with the Federal Reserve System appear to have increased compared to previous periods, although they have slightly decreased recently. The sentiment is that dollar liquidity has increased, given the monetary policy orientation adopted by the United States, but one should not conclude that dollars would be redistributed within the financial system during a crisis.

b) Increase in secured dollar lending: Some European Union credit institutions have reacted to the drying up of short-term unsecured lending by intensifying the use of secured dollar lending (repo operations) and EUR/USD swaps. However, the volume of funding that can be obtained through repos is limited to the amount of high-quality short-term liquid assets that can be pledged as collateral.

c) Reduction of dollar asset leverage: Several European Union credit institutions have accelerated the process of reducing leverage on their dollar balance sheets when US money market funds were reluctant to grant loans due to concerns about their sovereign debt portfolios. The sale of "legacy" dollar assets constitutes the main channel used for deleveraging. However, as noted above, reducing leverage can have unforeseen consequences if it triggers sales of dollar assets and limits the ability of credit institutions to lend to the real economy.

d) Support from central banks through the provision of liquidity: The Federal Reserve System, together with the ECB, the Bank of England, the Swiss National Bank, and the Bank of Canada, announced in June the extension of the temporary reciprocal currency swap arrangement (dollar swaps) until August 2012. On September 15, 2011, the central banks also announced that they would conduct three dollar liquidity operations of approximately three months' duration covering the end of the year. These measures helped alleviate tensions in dollar funding markets and meet the dollar funding needs of European Union credit institutions. The currency swap arrangements put in place by central banks, even when not used, seem to reassure market participants and thereby support the functioning of foreign exchange swap markets. However, there is a risk of moral hazard, as credit institutions may be tempted to refrain from turning to a more robust funding structure, although the rates of these facilities are supposed to reduce this risk to some extent.

e) Foreign exchange swap market infrastructure: Operators mentioned the existing infrastructure supporting the proper functioning of foreign exchange swap markets, such as the CLS system, and practices that allow aligning the maturity of the swap transaction with that of the underlying loan.

Some risk mitigation factors have already contributed, to some extent, to improving the dollar funding and short-term liquidity positions of European Union credit institutions and enabling them to overcome the strong tensions observed recently in dollar funding markets. However, in addition to these elements, it appears necessary to adopt a more structural medium-term approach to prevent the recurrence of the tensions observed in these markets in 2008 and 2011.

f) Emergency funding plans: Among the instruments designed to mitigate medium-term dollar funding risks are emergency funding plans (EFPs). As part of the data collection, the CEBS collected information from national supervisory authorities regarding the management measures planned in the EFPs of credit institutions to deal with shocks affecting dollar funding. These management measures were common to countries that reported that credit institutions explicitly took them into account. Such measures, which could be implemented separately or simultaneously, depending on the nature and severity of the shock, provide for a reduction (sale or early repayment) of assets requiring dollar funding or a decrease in lending, the use of spot foreign exchange markets and foreign exchange swap markets to use other currencies to raise dollars, repos or the sale of liquidity buffers constituted by liquid assets, the use of facilities put in place by central banks (the ECB's dollar liquidity facility and the Federal Reserve System's discount window).

Some measures entail specific risks. In particular, extensive use of the spot foreign exchange market would be accompanied by a negative "signal" effect. Reducing the need for dollar funding (through asset sales or liquidations) may prove difficult if a number of European Union credit institutions decide to do so at the same time, which carries a risk of chain reactions, as explained earlier in this section. Supervisory authorities who consider that dollar funding constitutes a significant part of their banking sector reported that most credit institutions had access to the Federal Reserve System's liquidity facilities. However, supervisory authorities in several countries noted that their credit institutions' plans did not include explicit measures to be implemented in the event of a shock affecting dollar funding. This is a serious gap given the current situation in the markets, especially if this eventuality occurs regarding European Union credit institutions that rely significantly on short-term dollar funding.

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Revealingly, the CEBS noted that serious data gaps at the European Union level, which limited its capacity to analyze the potential impact of risks weighing on dollar funding, constituted a major risk. This was particularly the case in understanding the profile of dollar-denominated assets. Some recommendations formulated in the following section aim partly to improve the quality of data necessary for subsequent analysis.

III. CEBS RECOMMENDATIONS
OBJECTIVES
The CEBS recommendations concern the short-term liquidity risk that clearly exists within the European Union and the potential medium-term risk to the real economy of the Union. Any recommendation made to address these risks aims to avoid the emergence of similar tensions affecting the dollar funding of European Union credit institutions during the next financial crisis, rather than dealing with current problems.

Furthermore, since short-term interbank refinancing is used to finance long-term activities and assets, it is appropriate, when examining the issue of fragilities related to dollar maturity mismatches, to take into account links with other issues. It is necessary to take these into account so that recommendations regarding dollar funding also integrate them.

a) Short-term interbank refinancing: The use of dollar funding falls within a broader framework, that of the demand and use of short-term interbank loans by European Union credit institutions. However, it likely generates more risk for financial stability authorities than short-term funding in general, for the reasons mentioned in section II.1.

b) Diversification of funding sources: In the context of strengthening the funding markets of European Union credit institutions, these institutions are encouraged to diversify their funding sources, which practically implies seeking investors in several geographic zones and in several currencies. Any policy aimed at limiting dollar maturity mismatches must be consistent with those conducted in this area.

c) International banking structure/the global lender of last resort function: One reason for potentially setting limits on dollar maturity mismatches — or, more generally, on currency mismatches — stems from the observation that, currently, national central banks generally provide liquidity guarantees only in the national currency, i.e., no entity exercises the function of a global lender of last resort. The dollar swap agreements concluded by the Federal Reserve System with certain central banks may be temporary and it will likely not be possible to rely on them permanently. In the absence of a lender of last resort, it might be useful to limit the exposure of European Union credit institutions to dollar liquidity risks or, more generally, to currency risks. But some argue that such a measure would reverse the trend towards increased globalization of banking activities.

d) Communication policy: The dissemination of information by European Union credit institutions regarding liquidity and funding is generally very limited, compared to information communicated on capital and other balance sheet indicators. The arguments for and against information dissemination are frequently repeated by several other international groups and have not been the subject of in-depth discussion within the CEBS. The latter considers that any discussion concerning the benefits of disseminating certain information regarding funding and liquidity strength should also take into account the publication of indicators concerning the use of short-term dollar and currency funding as well as dollar or currency maturity mismatches, in order to promote market discipline.

III.1. Recommendation A — Monitoring of US Dollar Funding and Liquidity National supervisory authorities are invited to:
1) closely monitor the US dollar funding and liquidity risks taken by credit institutions, as part of their supervision of the overall funding and liquidity position of credit institutions. National supervisory authorities should particularly monitor:
a) US dollar maturity mismatches; b) funding concentrations by counterparty category, focusing on short-term counterparties; c) the use of US dollar currency swaps (including cross-currency interest rate and currency swaps); d) intra-group exposures.
2) consider, before US dollar funding and liquidity risk exposures reach excessive levels:
a) encouraging credit institutions to take measures to appropriately manage risks resulting from US dollar maturity mismatches;

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b) limiting exposures, while avoiding a sudden unwind of current funding structures.

III.1.1. Economic Rationale
Careful assessment and monitoring would allow authorities to better understand the evolution of dollar funding risks. This would also help them encourage credit institutions to take the necessary ex ante measures to correct distortions in risk management and to limit excessive exposures. From a macroprudential perspective, it is important to proceed in this manner at the sector level and for each entity.

The lower cost of short-term funding, compared to that of long-term loans, can give rise to moral hazard, as entities do not adequately assess the cost of operations designed to protect them against risks in foreign exchange swap markets. If credit institutions expect government intervention during market turbulence, they might resort excessively to short-term dollar funding. The recommendation aims to help authorities understand their banking sector's exposure to this risk, better grasp the degree of coverage provided, and the issue of potential moral hazard. It also aims to raise credit institutions' awareness of authorities' concerns, in order to influence behaviors from now on.

III.1.2. Assessment, including advantages and disadvantages The advantages of this recommendation are as follows. a) Careful monitoring is an indispensable condition for identifying the accumulation of excessive exposures to dollar funding risk and for taking preventive measures against potential systemic risks. b) It could help partially eliminate the moral hazard problem posed by credit institutions' use of dollar funding by making entities more aware that national supervisory authorities are examining this issue.

It also has, however, disadvantages. a) Monitoring dollar funding sources by counterparty category is sometimes not possible, for example where securities are issued through an intermediary. b) Compliance costs for authorities who will have to strengthen supervision processes.

III.1.3. Monitoring
III.1.3.1. Calendar
National supervisory authorities are invited to submit to the CEBS, by June 30, 2012, a report on the measures taken to implement this recommendation.

III.1.3.2. Compliance Criteria
The compliance criteria are defined as follows:
a) monitor the funding and liquidity conditions of the banking sector, with supervision covering at minimum:
a) the sources and uses of dollar funding; b) maturity mismatches between dollar assets and liabilities, compared to those existing between domestic assets and liabilities, for the most relevant maturity buckets (1) (2); c) dollar funding liabilities by significant counterparty category (in this framework, national supervisory authorities must express their opinion on the feasibility of regular supervision of these types of counterparty concentrations); d) the use of dollar swap markets; e) intra-group exposures; b) limit exposures, whenever liquidity and funding risks are likely to become excessive.

III.1.3.3. Communication regarding monitoring
The report must cover all compliance criteria and address the following points:
a) the processes in place to monitor dollar funding and liquidity risk; b) the indicators defined under the compliance criteria; c) where applicable, the limits set for exposure to funding and liquidity risks.

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(1) Maturity buckets will be defined by the national authorities of each country.
(2) This indicator corresponds to monitoring tool III.1 on contractual maturity mismatch in "Basel III: International framework for liquidity measurement, standards and monitoring", December 2010, pp. 32-33, available on the BIS website (http://www.bis.org).

III.2. Recommendation B — Emergency Funding Plans National supervisory authorities are invited to:
1) ensure that credit institutions include management measures in their emergency funding plans to deal with a shock affecting US dollar funding, and have studied the feasibility of such measures in the event of simultaneous implementation by more than one credit institution. At the very least, emergency funding plans should examine available emergency funding sources in the event of a reduction in supply from several counterparty categories;
2) assess the feasibility, at the banking sector level, of these management measures planned in emergency funding plans. If the simultaneous taking of measures by credit institutions is considered likely to generate potential systemic risks, national supervisory authorities are invited to consider measures to reduce these risks and their impact on the stability of the Union banking sector.

III.2.1. Economic Rationale
Credit institutions must be aware of the risks specifically related to their dollar funding and be prepared to deal with potential disruptions or difficult situations. In the short term, the recommendation must ensure that credit institutions operating with significant dollar funding have put in place minimum backup arrangements to avoid exacerbating funding problems in extreme situations.

If emergency funding plans resulted in identical or similar responses from credit institutions facing shocks affecting dollar funding markets, they could generate new systemic problems, resulting from disruptions appearing in the markets. If, for example, a large number of credit institutions contemplated selling a particular category of liquid assets or resorting to a specific funding channel during a period of tension in dollar funding markets, the reliability of these forms of emergency funding could be compromised.

III.2.2. Assessment, including advantages and disadvantages The advantages of this recommendation are as follows. a) Emergency funding plans in place for dollar funding would reduce the frequency of disordered responses implemented by credit institutions facing disruptions affecting dollar funding markets. b) These plans would also allow credit institutions to understand and internalize the costs of a crisis or other potential disruptions affecting dollar funding when making financing decisions.

It also has, however, disadvantages. c) If emergency funding plans triggered, on a large scale, similar reactions from credit institutions facing widespread dollar funding problems, this evolution could result in an aggravation of systemic risks related to the concentration of emergency funding solutions. d) There are uncertainties regarding the availability, in practice, of backup procedures, apart from certain public sector interventions, which could retain their effectiveness, particularly during a large-scale crisis of confidence in dollar funding markets.

III.2.3. Monitoring
III.2.3.1. Calendar
Recipients are invited to submit to the CEBS, by June 30, 2012, a report on the measures taken to implement this recommendation.

III.2.3.2. Compliance Criteria
The compliance criteria are defined as follows. a) Emergency funding plans developed for dollar funding of credit institutions whose respective national supervisory authorities consider that they give the dollar a significant role as a funding currency. b) The assessment by supervisory authorities of the plans to determine the probabilities that a wide range of similar responses would be implemented in the event of a crisis, with the potential consequence of aggravating the situation. c) The reduction of the risk of exacerbating systemic risks resulting from the alignment of dollar emergency funding plans put in place by the relevant credit institutions.

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III.2.3.3. Communication regarding follow-up
The report must cover all compliance criteria and address the following points. a) The surveillance actions carried out to ensure that the credit institutions concerned have put in place emergency funding plans for dollar financing. b) Any systemic problems observed in the context of the assessment of emergency funding plans and the surveillance actions taken to resolve these problems.

GLOBAL ASSESSMENT OF MEASURES
The recommendations aim to prevent the emergence in the future of tensions in the dollar funding of credit institutions in the European Union of a magnitude comparable to those observed during the financial crises of 2008 and 2011.
One of the main challenges of the recommendations is to enable national supervisory authorities and the EBA to better identify the accumulation of excessive dollar funding risks and to take preventive measures to address potential systemic risks.
The recommendations aim to reduce moral hazard concerning credit institutions in the European Union by ensuring that they adequately assess and internalize the cost of protecting themselves against funding tensions. If credit institutions in the Union expect public intervention during market turbulence, such a situation could contribute to excessive recourse to short-term dollar funding. Improved surveillance and supervisory policies will enable authorities to better understand the banking sector's exposure to dollar funding and liquidity risks as well as the issue of potential moral hazard. The implementation of emergency funding plans will facilitate the internalization of risks related to the dollar funding of credit institutions in the Union and will favor the strengthening of credit institutions' resilience to tensions in dollar funding markets by reducing the need for disorderly responses to disruptions affecting these markets. From a macroprudential perspective, it is important that the recommendations aim to mitigate systemic risks generated by simultaneous actions decided by credit institutions in the Union in the event of market tensions, thus avoiding a disorderly unwinding of financial structures. For all recommendations, the expected benefits of their implementation exceed their cost. The main financial burdens concern compliance by national supervisory authorities regarding the extension of surveillance and reporting obligations, and the more stringent supervisory obligations that credit institutions in the European Union must meet.

10.3.2012 Official Journal of the European Union FR C 72/19

ADDENDA
VOLUNTARY COLLECTION OF DATA CONCERNING THE DOLLAR FUNDING OF CREDIT INSTITUTIONS IN THE EUROPEAN UNION The information collected by the European Systemic Risk Board (ESRB) as part of the data collection exercise carried out with the participation of national supervisory authorities is based on two reporting models and a questionnaire. The first reporting model ('Model A'), established on the basis of the liquidity risk assessment model developed in 2011 by the European Banking Authority (EBA), includes data on cash flow inflows and outflows, rebalancing capacity, and funding plans, broken down by maturity. The second reporting model ('Model B') is focused primarily on the balance sheets of credit institutions in the European Union, particularly regarding assets and liabilities denominated in dollars, and is better suited to the needs of the ESRB. An additional questionnaire was developed to provide qualitative information on the recourse of credit institutions in the Union to dollar funding and to collect information related to prudential supervision in this area. The request for information was addressed to all Member States and aimed to collect data as part of a best-efforts obligation, in order to cover, at a minimum, credit institutions in the European Union whose dollar commitments are significant (representing at least 5% of total liabilities). The data collection concerned credit institutions from seventeen Member States. Bulgaria, the Czech Republic, Estonia, Ireland, Hungary, Poland, Portugal, Slovenia, and Finland decided not to participate in the data collection. The reporting of information could be done at the level of each credit institution. Another option was to aggregate them at the national level if the aggregate consisted of data provided by at least three credit institutions. In order to ensure the anonymity of confidential data communicated by certain credit institutions in the Union, information concerning, at a minimum, three institutions was grouped together. Data from Model A, which in most cases correspond to data already reported under the liquidity risk assessment carried out by the EBA, refer to positions as of end-December 2010. The reporting date for Model B, for which data collection was limited to what was required by the scope of the analysis conducted by the ESRB, is, with a few exceptions, end-June 2011 (see table).

Table
Summary of the data sample collected under Model B Member State Number of credit institutions constituting the sample Share of the national banking sector in the sample Type of accounting Reference period BE 2 33% Non-consolidated June 2011 DE 8 31% Non-consolidated June 2011 DK 1 Consolidated December 2010 ES 2 22% Consol. and sub-consol. Dec. 2010 - June 2011 FR 3 72% Consolidated June 2011 GR 3 63% Consolidated March 2011 IT 2 50% Consolidated December 2010 LU 76 95% Non-consolidated June 2011 LV 14 40% Non-consolidated January 2011 MT 12 76% Consolidated June 2011 NL 2 58% Consolidated Dec. 2010 - June 2011 SE 4 91% Consolidated June 2011 SK 31 98% Non-consolidated June 2011 C 72/20 Official Journal of the European Union 10.3. FR 2012

Member State
Number of credit institutions constituting the sample Share of the national banking sector in the sample Type of accounting Reference period UK 3 72% Consolidated July 2011 Total 163 48% — — Source: ESRB and own calculations of Member States.
Notes: Data concerning Belgium, Germany, Luxembourg, Latvia, and Slovakia were collected on a non-consolidated basis and do not include those from US subsidiaries and branches of credit institutions. The share of credit institutions in the Union in the sample regarding the total consolidated assets of the European Union banking sector is calculated as of end-2010. For Malta, the share refers to the entire banking sector (including foreign credit institutions). For Germany, Luxembourg, and Latvia, the share concerns the total non-consolidated assets of the resident sector of monetary financial institutions in June 2011.
10.3.2012 Official Journal of the European Union FR C 72/21