Daily and time money trading
The overnight and term money market (including money market called) is a key market segment of the money market , with unsecured loans or investments with a maturity of one day up to one year traded are. Internationally, he is part of the international credit transactions and is called English call money and term deposit trading .
Commercial objects and market participants
Trading objects are overnight money , time deposits and so-called advance payment transactions . The latter include same-day transactions ( english overnight , O / N , ON ) and shops for the next banking day ( English Tomorrow Next , Tom-Next , T / N or TN ), to by both parties working day meet are. In the case of time deposits, the due date is postponed to more than one working day, with a maximum term of between one month and 12 months. Market participants are mainly credit institutions , which often act as market makers , as well as non-banks with first-class credit ratings (" AAA ") such as insurance companies , pension funds , fund companies , large companies , public companies and central banks . Large companies can also trade with one another with overnight money or time deposits within the framework of disintermediation ( industrial clearing ) or balance liquidity within a group between the group parent and the subsidiaries ( group clearing ).
Business types
In particular, the overnight interest rate is based on the key interest rate of the ECB, the prime lending rate , plus a credit margin that depends on the credit risk ( rating ) of the borrower . As a rule, the overnight interest rate is lower than the interest rate for unsecured overdrafts . At normal interest rates, the term deposit rate is higher than the overnight rate, because market participants assume that interest rates will rise in the future; when the rate of interest is inverse, the situation is reversed. Pound sterling or US dollars can also be used as tradable foreign currencies . The reference interest rate types are EURIBOR (for terms between 1 week and 12 months), LIBOR (overnight to 12 months) and EONIA (for prepayment transactions).
With overnight money one differentiates:
- English Overnight business , alsocalled overnight forshort, in which the money isloaned overnight between the contractual partners overnight . The money is the same day account of the borrower credited and the next day lenders including interest repaid. In orderto be able to process theassociated payment transactions, overnight transactions are usually carried out no later than 2 p.m. , In interbank trading banks operating among themselves after that date overnight transactions to its position close out .
- English Tom / Next business is referred to in the long form as Tomorrow-against-Next-Day . The money dealers thus agree on the day the transaction is concluded that one counterparty will provide the other with money on the next day by the day after that. The day after the next, the lender receives his principal amount back including interest.
- english Spot / Next business is in the long form spot-against-next-day . Borrower and lender agree on a money loan , which is paid to the borrower on the day after the next day at the normal market value and is paid back to the borrower on the following working day including interest.
As time deposits , however, all transactions refer to operations where the borrower borrows the amount for more than one day. Business starts usually on the day after next ( market custom ). The repayment will be made on the agreed date including interest. The term is only in exceptional cases longer than a year. Ultimate money are time deposits that are only due after the end of the month or year.
completion
The central hub for overnight and time deposit trading is the central bank responsible for the respective currency. In principle, every bank has a clearing account in its domestic currency with the respective central bank, through which all payment transactions are processed. Payments from overnight and time deposit transactions between banks are usually made by debiting the clearing account of the lender or crediting the clearing account of the borrower. If industrial or trading companies are involved, the payment is processed via the clearing account of the bank holding the account. In the case of foreign currencies , payment is processed via the corresponding clearing account of the correspondent bank of the respective counterparty (s).
history
Day and time money trading began as a market segment in interbank trading among credit institutions . For most of the specialist banks ( group banks , auto banks , installment banks , development banks ), interbank trading in overnight money and time deposits became the main source of refinancing . The resulting counterparty risk is at least since the bankruptcy of Herstatt Bank in June 1974 German banking sector came to the fore. When on June 26, 1974 the Federal Supervisory Office (today: BaFin ) withdrew the banking license granted to the Herstatt Bank in accordance with Section 35 (2) No. 4 KWG , it simultaneously ordered the bank to be wound up and instructed it to stop its payments immediately . This so-called moratorium on raising funds meant that the Herstatt Bank was no longer allowed to make payments due to banks even if these counterparties had already provided their consideration . Some domestic credit institutions ( Sparkassen and Landesbanken ) as well as foreign banks were particularly affected by overnight and time money trading with the Herstatt Bank as borrower . They had provided the Herstatt Bank with a considerable amount of overnight and term loans.
The financial crisis from 2007 onwards also clearly showed that institutions significantly underestimated the counterparty default risk. The bankruptcy of the Lehman Brothers bank in September 2008 led to an enormous crisis of confidence within the interbank market, which subsequently came to an almost complete standstill. Instead, the credit institutions began to refinance themselves with their central bank (within the EU member states the European Central Bank ), even though they have to provide central bank- eligible collateral when using the main refinancing instrument of the ECB . This provision of credit collateral for overnight or time deposits is contrary to the system in overnight and time money trading, but is intended to prevent the ECB from taking a credit risk .
Banking supervisory regulations
In overnight money and time deposits, the lender is exposed to a (unilateral) credit risk, while in derivatives or cash or forward transactions (not forward money transactions ), the counterparty risk represents a bilateral risk of loss.
The Capital Adequacy Ordinance (English abbreviation CRR) has regulated EU-wide as follows since 2014: In order to be able to classify the credit risk from overnight and time deposit transactions, a credit institution may not enter into a business relationship with a counterparty without having assessed its creditworthiness as part of a creditworthiness check (Art . 286 para. 2a CRR). While credit risks vis-à-vis non-banks are included in the risk position with 100 percent of the overnight or time deposit amount (Art. 111 Para. 1a CRR), credit institutions are taken into account as borrowers with 20 percent of the overnight or time deposit amount. Public companies (in the case of credit security through a public guarantee ), municipal loans (Art. 115 (1) CRR), loans to certain multilateral development banks (Art. 117 (2) CRR) and to the ECB (Art. 114 (3)) are marked with 0 Percentage of the daily or time deposit amount are therefore not subject to any capital adequacy requirement.
Individual evidence
- ↑ Hans Paul Becker / Arno Peppmeier, Bankbetriebslehre , 1992, p. 28
- ↑ Michaela Müller, Company Valuation in Times of Crisis , 2015, p. 15
- ↑ Basel Committee on Banking Supervision: International Convergence of Capital Measurement and Capital Requirements , 2006, p. 288