The fifteen central banks furthermore agreed not to expand their gold lending and gold forward transactions during this period. While the U.S. and Japan were not part of the joint statement, they declared that they had no intention of changing their “passive” gold policy. Furthermore, the IMF announced that it would abandon its plan to sell some of its gold reserves in the market. These declarations had a big impact on the market for two reasons: First, they removed the uncertainty about the behaviour of the holders of 85% of the world’s official gold reserves. Second, the planned annual total sales (400 tonnes) compared favourably with the sales and increases of gold lending activity of the previous years (700 tonnes). 1  The idea of a Swiss Foundation of Solidarity was suggested to the President of the Swiss Confederation by the then President of the Governing Board of the SNB. 2  BIS Review 31/2005  The Washington joint statement on gold was a coordinated effort aiming at clarifying the intentions of the participants in a market prone to rumours and secrecy. Of the 1,300 tonnes of gold which the Swiss National Bank intended to sell, 1170 tonnes were included in the 2000-tonne total sales quota of the Washington Agreement. In other words, the SNB ended up being the main beneficiary of the agreement. Formally, the initiative for the Washington Agreement did not come from the SNB.
As a result, after having reached record highs during the months preceding the summer, the issuance of ABSs declined sharply. Some asset classes in the structured finance markets have been hit more severely than others (Chart 2). This concerns the most complex instruments such as collateralised debt obligations (CDOs) squared, synthetic CDOs and constant proportion debt obligations (CPDOs). Among the more traditional products, commercial mortgage-backed securities (CMBSs) saw a significant decline in issuance activity. Indeed, in the latter part of 2007, due to lowered demand for structured credit products coupled with an uncertain outlook for commercial property markets, issuance of CMBSs came to a halt. Issuance activity in the euro area during the last quarter of 2007 dropped to € billion from € billion one year earlier. Also, European CMBS issuance activity during the first four months of 2008 was approximately 28% of the level corresponding to the same period of the previous year. In comparison, residential mortgage-backed securities (RMBSs) have dropped only by 15% during the same time period between 2008 and 2007 and the issuance level in March-April this year was actually higher compared with the same period last year. The sharp re-pricing of credit and liquidity risk in ABS secondary markets had an impact also on supply and demand conditions in primary markets. Prices, measured as spreads over Euribor rates, started to increase during the summer 2007 and some of the spreads stand now above 200 basis points above the 3-month Euribor rate (see Chart 3).