International money and currency markets.
Eurodeposits: declining volume.
The movement in the item "Banks: domestic
and foreign" indicates that the Eurodeposit
sector played a somewhat less important role in
1985. The figures on both the assets and liabil
ities sides of the balance sheet were somewhat
lower, the fall being greater on the assets side.
With the greater part of the Eurodeposit business
being in dollars, the fall in its value against the
guilder was, of course, one of the chief reasons
for this situation. Another lay in our cautious
approach to this market, to which reference has
been made in previous reports and which is
allied to the risks involved. We adopted an even
stricter line in the face of the uncertainty caused
in the market by the measures decided upon by
the Group of Five to force down the dollar.
These not only affected the rate of exchange of
the dollar, but also interest rates in several
countries, most notably Japan.
The last, but certainly not the least important,
factor is that a part of the function of the Euro-
deposit market, namely to provide a means of
achieving optimum control of liquidity, has been
taken over by other instruments. With the
growth of products such as interest swaps, NIFs,
forward rate agreements, etc., the liquidity
position can be varied without affecting the
balance sheet.
Such is the importance of these new products
that a separate unit has been set up within the
Treasury Directorate to study ways in which
they can best be used in the management of the
Bank's liquidity and that of our clients. We
accordingly anticipate making increasing use of
these instruments.
The improvement in earnings from Euro-
deposits is due in large measure to the growing
number of transactions in which the Bank is
involved. In addition, the higher earnings also
related to the somewhat wider interest margin in
the "traditional" Eurodeposit business; and this,
in turn, can be attributed partly to our
reputation in the market and partly to the
influence on margins of the fall in interest rates.
A tense moment in an ABN dealing room at the height of the day's trading on the international foreign exchange market.
