ICMA's European Repo Council released the results of its 25th semi-annual survey of the European repo market.
The survey sets the baseline figure for market size at €6,076 billion (8.6 per cent increase since the last survey in December 2012). This recovery in the European repo market is in marked contrast to the contraction in the US repo market which was widely reported in July. The revival in repo activity in Europe appears to be driven by banks in the eurozone returning to the market for funding as they start to repay the exceptional assistance of over €1 trillion, provided to the market via the European Central Bank through the Long Term Refinancing Operations (LTRO) liquidity of December 2011 and February 2012. The LTRO repayments have contributed to tighter market conditions and a steepening money market yield curve. The higher rates and greater market confidence have attracted lenders away from the ECB deposit facility (which pays zero percent) and back into the market.
The survey also revealed that the market share of euro-denominated repo has recovered over the same six-month period since December 2012, now comprising 64.8 per cent of the survey total, providing further evidence for the role of the LTRO repayments in promoting recovery in the European repo market.
Godfried De Vidts, Chairman of ICMA’s European Repo Council said: “The long running ICMA-ERC semi-annual survey has proven to be highly valuable as arguments around the repo markets have flared up in regulatory discussions of late. The ERC will publish shortly a view on how a more comprehensive gathering of data may be accomplished. Today’s survey shows a healthy market that provides cash/collateral liquidity between interbank market participants in a secured way as mandated by Basel. This in itself provides a much safer way of distributing liquidity, in contrast to unsecured lending where counterparties are 100 per cent exposed to each other. I hope the value of the repo product continues to be recognised while we engage with policy makers on the new framework as highlighted in the recent FSB report.”
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