March 9, 2012 1

EIB and the Dodd-Frank Act EIB and the Dodd-Frank Act
March 9, 2012 2

Summary

EU’s supranational financing institution

Owned and governed by the 27 EU Member States

End-user of swaps for hedging purposes only

Exempted under EMIR

Equivalent treatment in the U.S. appropriate since:

Compliance would have unintended consequences:

impede EIB’s mission to implement EU public policy or

require EIB to avoid US counterparties

No systemic impact of excluding EIB from Title VII

Treaty regulated/supervised
March 9, 2012 3

European Investment Bank (EIB)

Policy-driven not-for-profit financing institution

EU vehicle for financing infrastructure and projects

Not involved in any bail-outs

Lending: €60 billion in 2011

Funding: €76 billion in 2011

Bonds issued on international capital markets

20 currencies, including EUR, USD, GBP

No deposit taking
March 9, 2012 4

Supranational Institution

Created in 1958 under the Treaty of Rome

Regulated/supervised in accordance with EU Treaty

Own governance system subject to collective decision-making by

member sovereigns

Recognized in the US as/when needed, e.g.:

“Foreign government” issuer / “Schedule B filer” under the

Securities Act of 1933 (SEC No-Action Letter, 12/9/1964)

“Public international organization” under the Securities Exchange

Act of 1934 (Ex. Order 13259, 3/19/2002)

Excluded from the Patriot Act (31 CFR Part 103; Financial

Crimes Enforcement Network, 67 Fed. Reg. 60562)
March 9, 2012 5

End-User of Swaps

Hedging only, no speculation/arbitrage

Interest rate swaps to convert fixed to floating rates

Cross-currency swaps to hedge currency risk

Plain vanilla: 98.2%; Structured: 1.8% (2011 numbers)

Exposures pose no systemic risk

Exposures to counterparties collateralized one way

Net exposure: €1.5 billion (US counterparties: €177 million)

Including potential future exposure: €12.7 billion

(US counterparties: €2.2 billion)

Europe based swap trading

All swaps traded via EIB’s Luxembourg office

Usual counterparties European or Europe based
March 9, 2012 6

Exempted Under EMIR

Exempt from clearing and collateral posting

Reasons:

Compliance would impede EIB’s public mission by limiting its

lending or would require capital injection of public money

EIB swap usage not systemically important

Treaty regulated/supervised and direct oversight by the EU

Member States
March 9, 2012 7

EIB Under the Dodd-Frank Act

Treatment in the United States equivalent to treatment in Europe

appropriate

Should be excluded from swap clearing and collateral requirements

and entity definitions

Reasons:

Compliance would have unintended consequences:

impede EIB’s mission to implement EU public policy or

require EIB to avoid US counterparties

No systemic impact of excluding EIB from Title VII

Treaty regulated/supervised
March 9, 2012 8

Unintended Consequences

Compliance would impede EIB’s implementation of EU’s public policy

Significant amount of new funds to be raised to acquire collateral

Potentially resulting in up to €500 million of extra funding costs

Forced to avoid US counterparties (25% of total)

Extraterritorial reach: de jure vs. de facto

US-EU tradition of comity/reciprocity/mutual recognition
March 9, 2012 9

No Systemic Impact

Total nominal value of swaps with US counterparties: €128 billion

Gross exposure to US counterparties: €8.5 billion

Net exposure to US counterparties: €177 million

Including potential future exposure: €2.2 billion

Liquidity: € 71 billion

Supported by predictable loan disbursements
March 9, 2012 10

Treaty Regulated/Supervised

Swaps usage restricted through EIB’s governance structure

EIB Statute, Art. 21:

Without prejudice to the provisions of Article 23, the Bank shall not, in

managing its investments, engage in any currency arbitrage not directly

required to carry out its lending operations or fulfil commitments arising out of

loans raised or guarantees granted by it.

EU Ministers (mostly Finance Ministers) are EIB’s governors

(EIB Statute, Art. 7)

EIB’s Board of Directors made up by deputized ministry officials from

the 27 EU Member States

Supervised collectively by the EU Member States through EIB

audit/oversight organs

Audited by a committee comprising bank supervisors, financial and

auditing experts (Art. 12):

A Committee consisting of six members, appointed on the grounds of their

competence by the Board of Governors, shall verify that the activities of

the Bank conform to best banking practice and shall be responsible for the

auditing of its accounts.
March 9, 2012 11

EIB Governing Bodies

Management Committee

President

8 Vice-Presidents

28 directors

18 alternates

+ 6 experts

(3 members, 3 alternates)

Board of Governors

Audit Committee

27 members

Board of Directors

6 members

1 observer
March 9, 2012 12

Conclusion

EU’s supranational financing institution

Owned and governed by the 27 EU Member States

End-user of swaps for hedging purposes only

Exempted under EMIR

Equivalent treatment in the U.S. appropriate since:

Compliance would have unintended consequences:

impede EIB’s mission to implement EU public policy or

require EIB to avoid US counterparties

No systemic impact of excluding EIB from Title VII

Treaty regulated/supervised
March 9, 2012 13

For more information

European Investment Bank

100, boulevard Konrad Adenauer

L-2950 Luxembourg

Ian Pohl

i.pohl@eib.org

Nicola Barr

n.barr@eib.org

Eila Kreivi

e.kreivi@eib.org