ECB Releases Results of March Survey on Credit Terms and Conditions
ECB published results of the March 2020 survey on credit terms and conditions in euro-denominated securities financing and over-the-counter (OTC) derivatives markets. The survey collected qualitative information on changes between December 2019 and February 2020. Against the background of the emerging outbreak of COVID-19 crisis during the latter part of the review period, price and non-price credit terms offered to non-financial corporations, insurance companies, and hedge funds tightened somewhat in both the securities financing and the OTC derivatives markets.
The survey results shows that terms and conditions for banks and sovereign counterparties remained almost unchanged or eased somewhat on account of improving liquidity conditions. However, survey respondents expect credit terms and conditions to tighten significantly for all counterparty types over the next three months, particularly for banks and dealers. Respondents also reported a material increase in the volume of valuation disputes with banks and dealers. Also, as a result of the COVID-19 crisis, many respondents submitted their survey responses for the period December 2019 to February 2020 after the March 05, 2020 deadline. These respondents finalized their feedback against the backdrop of the rapidly evolving crisis.
The maximum amount and maturity of funding offered against euro-denominated securities continued to decline, especially for funding secured with high-quality government, corporate and covered bonds and, to a lesser extent, asset-backed securities. Haircuts increased for most collateral types. However, financing rates or spreads decreased somewhat for funding secured by all types of collateral except equities, convertible securities and high-yield corporate bonds. This survey reported the strongest increase in collateral valuation disputes over a three-month reference period—for all collateral types except domestic government bonds – since the launch of the survey in 2013. For all types of non-centrally cleared OTC derivatives, initial margin requirements increased, liquidity and trading deteriorated materially, and valuation disputes rose.
As in previous years, the March 2020 survey also included a number of special questions designed to offer a longer-term perspective on credit standards by comparing current conditions with those observed one year ago. Respondents reported that, on balance, terms and conditions in the secured financing and OTC derivatives markets remained broadly unchanged from the previous year, having tightened slightly for hedge funds and investment funds while easing for sovereigns, banks and dealers. In net terms, credit standards for secured funding eased relative to a year ago, while non-price conditions in OTC derivatives markets eased somewhat for most types of derivatives over the same period.
ECB also published detailed data series on the survey. The results of the survey are based on responses from a panel of 28 large banks, comprising 14 euro area banks and 14 banks with head offices outside the euro area. The survey 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 Eurosystem conducts a quarterly qualitative survey on credit terms and conditions in euro-denominated securities financing transaction and OTC derivatives markets.
Related Links
Keywords: Europe, EU, Banking, Insurance, Securities, SESFOD, Securities Financing Transactions, COVID-19, OTC Derivatives, Survey Results, Margin Requirements, Credit Risk, ECB
Featured Experts
Victor Calanog, Ph.D.
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Previous Article
Bundesbank Publishes Validation Rules Manual for AnaCredit ReportingRelated Articles
OSFI Finalizes on Climate Risk Guideline, Issues Other Updates
The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.
BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending
BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.
HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks
The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.
BCBS Report Examines Impact of Basel III Framework for Banks
The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.
PRA Consults on Prudential Rules for "Simpler-Regime" Firms
Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.
DNB Publishes Multiple Reporting Updates for Banks
DNB, the central bank of Netherlands, updated the list of additional reporting requests and published additional data quality checks and XBRL-Formula linkbase documents for the first quarter of 2023.
NBB Sets Out Climate Risk Expectations, Issues Reporting Updates
The National Bank of Belgium (NBB) published a communication on climate-related and environmental risks, issued an update on XBRL reporting
EBA Updates Address Securitization Standards and DGS Guidelines
The European Banking Authority (EBA) published the final draft of the regulatory technical standards that set out conditions for assessment of homogeneity of the underlying exposures in simple, transparent, and standardized (STS) securitizations.
FSB Publishes Letter to G20, Sets Out Work Priorities for 2023
The Financial Stability Board (FSB) published a letter intended for the G20 Finance Ministers and Central Bank Governors, highlighting the work that FSB will take forward under the Indian G20 Presidency in 2023
ISSB Standards May Become Effective from January 2024
The International Organization of Securities Commissions (IOSCO) welcomed the confirmation statement by the International Sustainability Standards Board (ISSB) setting out its progress in the development of its first sustainability-related corporate disclosure standards.
