Table 5: EU27 non-bank financial sector breakdown of loans, 2001-2011, €bn
Assets
Liabilities
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Δ outstanding amounts
Short-term loans
60
4
13
-34
52
308
57
89
22
132
326
-86
118
191
601
398
427
-257
-284
205
Long-term loans
238.0
78.7
279.5 276.1 267.5 476.6 483.6 194.8
97.5
-26.9 170.5
37.4
51.8
31.5
159.7 414.0 129.0 130.8 -43.1
113.3
Transactions
Short-term loans
24.7
6.6
7.4
-28.4
62.0
157.9
59.4
101.4
45.6
125.6 245.6
14.7
207.9 235.3 507.8 343.8 583.8 -120.6 -182.6 162.1
Long-term loans
172.9 137.7 213.9 229.3 313.5 366.8 675.4 389.9
43.1
71.0
132.5
52.6
59.5
8.7
162.8 218.0 121.6
11.0
-98.2
20.8
Δ valuation
Short-term loans
35.3
-2.5
5.6
-5.8
-10.4 149.7
-2.5
-12.7
-23.3
6.8
80.6 -101.1 -90.0
-44.0
93.0
53.8 -157.1 -136.7 -100.9
42.7
Long-term loans
65.1
-58.9
65.7
46.9
-46.0 109.8 -191.7 -195.1 54.4
-98.2
38.1
-15.2
-7.7
22.7
-3.1
196.1
7.4
119.8
55.1
92.5
Source: Eurostat Financial balance sheet data (nasa_f_bs), financial transactions data (nasa_f_tr) and other changes in financial assets (nasa_f_of)
3
│
Sub-sectors of the non-bank financial system
21
3
Sub-sectors of the non-bank financial system
This chapter describes the nature of financial intermediation carried out by the main non-bank
financial sub-sectors considered in this study. These descriptions provide a sense for the impact on
financial stability of any one of these sub-sectors ceasing to function effectively.
3.1
Money market funds
Money market funds (MMFs), or money market mutual funds, are a form of open-ended mutual
funds that invest in a diversified portfolio of money market instruments that are typically of short
duration. A ‘prime MMF’ invests in money market instruments issued by prime creditors, notably
bank deposits and commercial paper. A ‘treasury MMF’ invests in money market instruments
issued by governments. And, a ‘government MMF’ invests in money market instruments issued by
government agencies which enjoy varying degrees of support from their governments (IMMFA,
2011).
The objective of MMFs is to satisfy investor demand for security of capital, liquidity and yield, the
latter (yield) often being contingent on the former (security of capital and liquidity) for some but
not all MMFs (see discussion on 'enhanced' MMF below). Security of capital involves preserving
and lowering volatility of capital (Macey, 2011). Liquidity involves providing investors with same
day or next day access to capital. And, given security of capital and liquidity, MMFs seek to invest
in higher yielding money market instruments, although the impact of the financial crisis on money
markets has limited yields to a relatively low and narrow band.
EU-domiciled MMFs are regulated, at a European level, by the Undertakings for Collective
Investments in Transferrable Securities Directives (UCITS Directives). The UCITS Directive does not
impose detailed obligations on MMFs, as opposed to Rule 2a-7 of the US Investment Company Act
of 1940. Therefore, in 2010, the Committee of European Securities Regulators (CESR, now
succeeded by the European Securities and Markets Authority, ESMA) issued guidelines which
sought to define MMFs more tightly. CESR’s definition of a ‘short term’ MMF is somewhat similar
to Rule 2a-7, though it remains significantly less detailed.
In the absence of a European definition of MMFs that is as detailed as Rule 2a-7, the Institutional
Money Market Funds Association (IMMFA) maintains a Code of Practice, which is binding on its
Members (50% of MMFs), and imposes obligations equivalent to 2a-7 on their EU-domiciled funds.
In addition, certain Member States of the European Union impose detailed obligations on locally-
domiciled MMFs, notably in France in relation to the ‘fonds monétaires’.
Outside of these regulated or self-regulated markets are ‘enhanced’ MMFs, defined as funds that
take more credit and/or duration risk than would be permitted by Rule 2a-7 or the IMMFA Code of
Practice. Enhanced MMFs trade security of capital, and liquidity to some degree in return for
higher yield than other MMFs.
The function of MMFs is articulated as follows (IMMFA, 2011). MMFs satisfy investor demand for
security of capital among other things through diversification among strong counterparty credits.
An investor, for instance, may hold cash assets as bank deposits with a handful of banks.
Alternatively, an investor may hold a proportion of cash assets as bank deposits and the remainder
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