BNP Paribas Q&A

Sep 07 11

A statement entitled, "Euro, sovereign debt, liquidity and other issues: questions and answers from BNP Paribas" says, "How likely is it that the current crisis could lead to a freezing up of money markets and overnight interbank lending, similar to what we experienced during the Lehman crisis? Are you well-equipped and sufficiently liquid to deal with such an adverse scenario? The situation today is very different. Among the large European banks, the fall in activity in the interbank market is not mainly due to counterparty risk issues, but to the banks pre-empting the impact of the future Basel liquidity regulation. The interbank market is therefore likely to focus on instruments of one-month duration or less, which is in line with what BNP Paribas had expected. Regarding BNP Paribas' funding position: BNP Paribas has access to substantial short-term euro funding from a wide spread of sources. Conditions and maturities have not significantly changed in recent weeks. There has been no shortage of funds and no change in counterparties. In USD, we have an excess of short-term liquidity which the bank is obliged to deposit at the Fed. BNP Paribas has been taking steps since the start of 2011 to secure its funding position by proactively increasing the duration of its short term resources (one month to three months, three months to six months and so on). Despite the lower level of funding available to European banks from US money market funds in August, BNP Paribas has been able to tap a wide variety of funding sources. For example, US dollar funds have been sourced from corporates, supras, institutionals, Central Banks, wealth management clients, as well as money market funds across four geographic areas (USA, Asia-Pacific, Gulf countries, Western Europe). The bank has also had recourse to foreign exchange swaps to maintain access to US dollar funds. The recourse to alternative US dollar funding sources has had cost implications which have impacted pricing. In addition, BNP Paribas has a sizeable liquidity buffer: BNP Paribas has around E150bn of unencumbered assets eligible as collateral with central banks, of which USD30bn eligible under US Federal Reserve criteria."

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