| European Repo Trading Drops as Banks Deleverage |
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| Friday, 27 March 2009 | |
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European repo trades declined 26 % from June to December of 2008, as more banks cut credit and sought higher capital ratios, according to the latest survey by the European Repo Council of the International Capital Market Association (ICMA).
The survey sets the baseline figure for market size at EUR 4,633 billion, down from EUR 6,504 billion last June. Since the collapse of Lehman Brothers, banks have been rapidly deleveraging their balance sheets, causing a contraction in the European repo market. Over the past decade, the European repo market, which is used for secured financing, has served as a steady source of liquidity for financial institutions throughout the worst of market difficulties. “The development of secured financing in Europe over the last 10 years has undoubtedly led to the greater availability of sources of funding in the current credit crisis, mitigating its effects,” observed Godfried De Vidts, Chaitman of ICMA’s European Repo Council. He warned that the necessary stimulus for growth in secured markets would depend, in particular, upon the dismantling of barriers for some Euro Government Bonds in the use of Secure Central Counterparty (CCP) services. Other survey results indicate a 3.4 percent rise in the share of repo trading transacted electronically, and a 4.7 percent rise in anonymous electronic trading, which is shielded from risk by a secure Central Counterparty and netting of trades. Also, the share of the market underpinned by Government bond collateral increased from 81.0 percent to 84.7 percent. |
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