ECB published results of the September 2020 survey on credit terms and conditions in euro-denominated securities financing and over-the-counter (OTC) derivatives markets. The survey respondents reported an easing of credit terms and conditions over the June 2020 to August 2020 review period. This represents a partial reversal of the widespread tightening of credit terms and conditions observed in the previous two survey rounds. Additionally, the initial margin requirements decreased for almost all types of OTC derivatives. ECB also published survey guidelines and detailed data series on the survey.
The survey on credit terms and conditions in euro-denominated securities financing and OTC derivatives markets is conducted four times a year and covers changes in credit terms and conditions over three-month reference periods ending in February, May, August, and November. The results of the September 2020 survey are based on responses from a panel of 26 large banks, comprising 14 euro area banks and 12 banks with head offices outside the euro area. Respondents reported a significant easing of overall credit terms for all counterparty types. This overall easing masks some divergence between price and non-price terms. Whereas price terms eased significantly, non-price terms on balance tightened for all counterparty types, except banks. Respondents mainly attributed the easing of price terms to an improvement in general liquidity and market functioning, but they also suggested that the willingness to take on risk as well as the competition from other institutions were additional motivations for offering more favorable conditions to counterparties.
The survey respondents also reported increased pressure from all counterparty types, except investment firms, to obtain more favorable conditions, with this being the most pronounced from non-financial corporates. The maximum amount and maturity of funding offered against euro-denominated collateral increased for most types of collateral. Haircuts applied to euro-denominated collateral and financing rates or spreads decreased for funding secured by nearly all types of collateral. Moreover, the demand for funding of all collateral types except equities weakened. In a reversal of the situation reported in the June 2020 survey, participants saw the liquidity of collateral improving for all collateral types and collateral valuation disputes decreasing. Finally, the initial margin requirements decreased for almost all types of OTC derivatives. Respondents also reported that the maximum amount of exposures had decreased for OTC equity and commodity derivatives. Liquidity and trading deteriorated for credit derivatives referencing structured credit products as well as for equity and interest rate derivatives. The volume, duration, and persistence of valuation disputes decreased across all types of derivatives.
Keywords: Europe, EU, Banking, Securities, Insurance, SESFOD, OTC Derivatives, Credit Terms and Conditions, Credit Risk, Margin Requirements, Securities Financing Transactions, ECB
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