ECB’s SESFOD shows rise in secured funding demand and liquidity deterioration

The European Central Bank (ECB) released the results of the December 2024 Survey on credit terms and conditions in euro-denominated securities financing and over-the-counter derivatives markets (SESFOD). The results are based on the responses received from a panel of 27 large banks, comprising 14 euro area banks and 13 banks with head offices outside the euro area.

  • Overall credit terms and conditions tightened somewhat between September and November 2024 as general market liquidity deteriorated
  • Demand for funding secured against all collateral types rose
  • Market-making activities increased in 2024 on account of institutions’ greater willingness to take on risk and are expected to continue increasing in 2025

Overall credit terms and conditions tightened somewhat between September and November 2024. The tightening of overall credit terms and conditions – reflected in both price and non-price terms – was in line with the expectations of such tightening expressed in the September 2024 survey. Respondents attributed the above-mentioned tightening of price and non-price terms mainly to a deterioration in general market liquidity. A small net percentage of survey respondents expected overall terms to tighten further across all counterparty types in the three months ahead.

For central counterparties (CCPs), survey respondents reported that changes in CCPs’ practices, including margin requirements and haircuts, had contributed to a slight tightening in price and non-price terms. They reported increased resources allocated and attention paid to the management of concentrated credit exposures over the review period. Hedge funds’ use of financial leverage and the additional availability of unutilized leverage increased over the period.

Respondents reported increases both in the intensity of efforts made to negotiate more favorable terms for all counterparties and in the provision of differentiated terms for most-favored clients. A small net percentage of respondents reported a slight increase in the volume, duration and persistence of valuation disputes across all counterparty types.

Turning to financing conditions for funding secured against the various types of collateral, respondents reported increases in the maximum amount of funding secured against equity, domestic and other government bonds, and covered bonds.

They also reported an overall increase in the maximum maturity of funding secured against government bonds, corporate bonds, convertible securities and equities. A significant net percentage of survey respondents reported that financing rates/spreads had increased for funding secured against all collateral types.

Survey respondents also reported increased demand for funding across all collateral types. Moreover, they reported a slight deterioration in the liquidity and functioning of collateral markets. Finally, respondents reported a slight increase in the volume, duration and persistence of valuation disputes across almost all collateral types.

Read the full survey

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