ICMA writes to ECB raising concerns about Eurozone repo and money market conditions
26 October 2022
The letter points to a number of observations related to pricing dislocations, largely as a result of an environment of excess reserves and collateral scarcity, particularly around quarter-end reporting dates when the capacity for bank intermediation is reduced.
The International Capital Market Association (ICMA) has written to the ECB expressing
industry concerns about current conditions in the Eurozone repo and
money markets, and the risk that rising dysfunction in the market could
imperil the transmission of monetary policy. The letter is co-signed by
ICMA’s dedicated constituencies representing the repo and collateral
markets, the commercial paper and certificates of deposit market, the
secondary bond markets, as well as the asset manager and investor
community.
The letter
points to a number of observations related to pricing dislocations,
largely as a result of an environment of excess reserves and collateral
scarcity, particularly around quarter-end reporting dates when the
capacity for bank intermediation is reduced. As we enter a new phase of
the monetary policy cycle, with the normalization of interest rates and
associated market volatility, the potential for both the scale and
frequency of such dislocations is likely to increase. Year-end has
become a regular point of dislocation for the Eurozone repo and money
markets, and the current indications are that the upcoming 2022 “turn”
could be particularly challenging.
The letter also acknowledges policy initiatives adopted by other central banks intended to manage
the disequilibrium of excess liquidity and collateral scarcity and to
ensure the smooth transmission of monetary policy. Improving the
capacity of banks to intermediate in repo and money markets (as well as
bond and derivatives markets more broadly) could also help to contribute
to market stability and resilience.
ICMA welcomes the opportunity to discuss its concerns and policy suggestions with the ECB further.
Click here to view the letter.
ICMA
© ICMA
