European repo market loses value
25 February 2015 London
Image: Shutterstock
The size of the European repo market has fallen to €5.5 trillion, according to the International Capital Market Association (ICMA).
The 28th ICMA European Repo Council survey of the European repo market found that it had reduced in size since the last check in June 2014, when it was worth €5.78 trillion.
Interviews with survey participants revealed that the continuing reduction in repo activity reflects depressed business, and that new leverage and liquidity regulations aimed at reducing banks’ reliance on wholesale short-term funding are beginning to bite, according to the ICMA.
Survey participants cited the Basel III-mandated leverage ratio as a major constraint on balance sheets and addition to the cost of business, said ICMA.
ICMA’s survey did find that European repo participants are working to mitigate regulatory costs, with central counterparties being considered as trading routes and the average maturity of business lengthened.
There are also indications of increasing collateral transformation as banks swap collateral to acquire high-quality liquid assets required by new regulations, said ICMA.
Godfried De Vidts, chairman of ICMA’s European Repo Council, said: “Today we face many challenges which are rocking the repo market on its strong foundations and endangering its ability to provide secured finance in the service of Europe's real economy.”
“The cumulative impact of market legislation and prudential regulation is putting the safety and function of the repo market and other products at risk.”
The 28th ICMA European Repo Council survey of the European repo market found that it had reduced in size since the last check in June 2014, when it was worth €5.78 trillion.
Interviews with survey participants revealed that the continuing reduction in repo activity reflects depressed business, and that new leverage and liquidity regulations aimed at reducing banks’ reliance on wholesale short-term funding are beginning to bite, according to the ICMA.
Survey participants cited the Basel III-mandated leverage ratio as a major constraint on balance sheets and addition to the cost of business, said ICMA.
ICMA’s survey did find that European repo participants are working to mitigate regulatory costs, with central counterparties being considered as trading routes and the average maturity of business lengthened.
There are also indications of increasing collateral transformation as banks swap collateral to acquire high-quality liquid assets required by new regulations, said ICMA.
Godfried De Vidts, chairman of ICMA’s European Repo Council, said: “Today we face many challenges which are rocking the repo market on its strong foundations and endangering its ability to provide secured finance in the service of Europe's real economy.”
“The cumulative impact of market legislation and prudential regulation is putting the safety and function of the repo market and other products at risk.”
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