Featured Product

    ECB Issues Results of September Survey on Credit Terms and Conditions

    October 29, 2021

    The European Central Bank (ECB) published the results of the September 2021 survey on credit terms and conditions in euro-denominated securities financing and over-the-counter derivatives markets (SESFOD). The overall credit terms and conditions tightened slightly in both securities financing and over-the-counter (OTC) derivatives markets over the June 2021 to August 2021 review period. Survey respondents reported a tightening of overall credit terms for all counterparty types. Both price and non-price terms tightened somewhat for all counterparty types, and in particular for investment funds, hedge funds and insurance companies.

    The September 2021 survey included special questions aimed at determining the main purposes for which counterparties use OTC derivatives and securities financing transactions. Counterparties use OTC derivatives for a variety of purposes, depending on counterparty type, but they use securities financing transactions mainly for yield enhancement. While non-financial corporations, sovereigns, and bank and dealers use OTC derivatives almost exclusively for hedging purposes, hedge funds use them predominantly for speculation. For counterparties that use OTC derivatives for yield enhancement and/or speculation, interest rate derivatives are the instrument of choice, while for counterparties that use securities financing transactions for yield enhancement and/or speculation, high-quality government, sub-national and supra-national bonds are preferred. Respondents attributed the less favorable price terms mainly to a general deterioration in market liquidity and functioning, a decreased willingness of institutions to take on risk, and internal treasury charges for funding. They attributed the less favorable non-price terms mainly to a decreased willingness of institutions to take on risk, greater competition from other institutions, a general deterioration in market liquidity and functioning, and a reduced availability of balance sheet or capital. 

    With regard to securities financing transactions, respondents reported an ongoing easing of credit terms in securities financing markets across most collateral types, with increased maximum amounts of funding, increased maximum maturity of funding, decreased haircuts to collateral and, most notably, a continued decrease in financing rates/spreads for funding against almost all collateral types. Demand continued to weaken for funding against almost all collateral types, but in particular against government bonds and asset-backed securities. With regard to non-centrally cleared derivatives markets, respondents reported increased initial margin requirements for OTC derivatives, while liquidity and trading was broadly unchanged for the most part. Valuation disputes showed a moderate increase in volume as well as in duration and persistence. The SESFOD 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 September 2021 survey collected qualitative information on changes between June 2021 and August 2021. The results 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.

     

    Related Links

    Keywords: Europe, EU, Banking, Insurance, Securities, SESFOD, OTC Derivatives, Credit Risk, Margin Requirements, Securities Financing Transactions, Credit Terms and Conditions, Lending, ECB

    Related Articles
    News

    EBA Clarifies Use of COVID-19-Impacted Data for IRB Credit Risk Models

    The European Banking Authority (EBA) published four draft principles to support supervisory efforts in assessing the representativeness of COVID-19-impacted data for banks using the internal ratings based (IRB) credit risk models.

    June 21, 2022 WebPage Regulatory News
    News

    EP Reaches Agreement on Corporate Sustainability Reporting Directive

    The European Council and the European Parliament (EP) reached a provisional political agreement on the Corporate Sustainability Reporting Directive (CSRD).

    June 21, 2022 WebPage Regulatory News
    News

    PRA Consults on Model Risk Management Principles for Banks

    The Prudential Regulation Authority (PRA) launched a consultation (CP6/22) that sets out proposal for a new Supervisory Statement on expectations for management of model risk by banks.

    June 21, 2022 WebPage Regulatory News
    News

    EC Regulation Amends Standards for Calculating Credit Risk Adjustments

    The European Commission (EC) published the Delegated Regulation 2022/954, which amends regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.

    June 21, 2022 WebPage Regulatory News
    News

    BIS Hub Updates Work Program for 2022, Announces New Projects

    The Bank for International Settlements (BIS) Innovation Hub updated its work program, announcing a set of projects across various centers.

    June 17, 2022 WebPage Regulatory News
    News

    EIOPA Issues Cyber Underwriting Proposal, Statement on Open Insurance

    The European Insurance and Occupational Pensions Authority (EIOPA) published two consultation papers—one on the supervisory statement on exclusions related to systemic events and the other on the supervisory statement on the management of non-affirmative cyber exposures.

    June 17, 2022 WebPage Regulatory News
    News

    US Senate Members Seek Details on SEC Proposed Climate Disclosure Rule

    Certain members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs issued a letter to the Securities and Exchange Commission (SEC)

    June 16, 2022 WebPage Regulatory News
    News

    EIOPA Consults on Review of Securitization Framework in Solvency II

    The European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on the advice on the review of the securitization prudential framework in Solvency II.

    June 16, 2022 WebPage Regulatory News
    News

    UK Authorities Issue Regulatory and Reporting Updates for Banks

    The Prudential Regulation Authority (PRA) issued a statement on PRA buffer adjustment while the Bank of England (BoE) published a notice on the statistical reporting requirements for banks.

    June 15, 2022 WebPage Regulatory News
    News

    BCBS Issues Climate Risk Principles while HKMA Expresses Its Support

    The Basel Committee on Banking Supervision (BCBS) issued principles for the effective management and supervision of climate-related financial risks.

    June 15, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8286