ECB’s SESFOD shows credit T&Cs ease between March to May 2024

The European Central Bank (ECB) released the results of its June 2024 Survey on credit terms and conditions in euro-denominated securities financing and over-the-counter derivatives markets (SESFOD).

  • Credit terms and conditions eased somewhat over the period from March to May 2024
  • The maximum amount of funding, maximum maturity of funding and demand for funding increased across many types of collateral
  • Improved liquidity and trading conditions for foreign exchange, interest rate and credit derivatives referencing both sovereigns and corporates

The overall easing of credit conditions was in line with the expectations in the March 2024 survey. While overall price terms eased more than expected, non-price terms – contrary to expectations – did not tighten and instead remained unchanged.

The overall easing of conditions in general, and of price terms in particular, was reflected across all counterparty types. Respondents mainly attributed the easing of price terms to an improvement in general market liquidity, competition from other institutions and improvements in the current or expected financial strength of counterparties.

For the first time since the start of the survey in 2013, survey respondents expected overall, price and non-price terms to remain unchanged across all counterparty types for the three months ahead (in this case for the period from June to August 2024).

Respondents reported that changes in the practices of central counterparties (CCPs), including margin requirements and haircuts, had not affected price and non-price terms. The amount of resources dedicated to managing concentrated credit exposures increased over the review period, while the use of financial leverage declined somewhat. Respondents reported increases in the intensity of efforts to negotiate more favorable terms, in particular for insurance companies.

Turning to financing conditions for funding secured against the various types of collateral, respondents reported increases in the maximum amount and maximum maturity of funding secured against all collateral types.

Respondents reported that haircuts had increased for convertible securities. Financing rates/spreads decreased for domestic and high-quality government bonds but increased for funding secured against all other types of collateral. Small net percentages of participants reported decreased use of CCPs for securities financing transactions involving collateral in the form of domestic and high-quality government bonds.

Significant net percentages of respondents reported increases in demand for funding secured against many collateral types, particularly for funding secured against equities and domestic government bonds. Respondents reported mixed results as regards the liquidity and functioning of collateral markets.

Read the full survey

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