The decline is especially noticeable in the largest market segment, the secured market, and in the unsecured market. Total turnover in secured lending and borrowing decreased by 13% to €28.6 trillion in the second quarter of 2015 compared with the same period a year earlier. The decline in volumes was most visible in the overnight maturity. However, the share of centrally cleared secured operations remained broadly stable, at 72% of all bilateral repo transactions.
As in previous years, activity in the derivatives segments covered by the survey showed significant changes. Activity in foreign exchange (FX) swaps, the second-largest market segment, rose by 5% in the second quarter of 2015. The largest change was in overnight index swaps, where turnover decreased by 56%, undoing the increase in the second quarter of 2014. Other interest rate swaps (other IRS) increased by 11%, and forward rate agreements declined by 13%. Cross-currency swaps increased by 18% but continued to show lower turnover than the other segments.
According to comments provided by banks in the survey, risk aversion is not a significant factor behind the decline in turnover across market segments. The main reasons are, first, higher excess liquidity and the resulting lower volatility in the money markets, and, second, regulation, including the burden of capital charges and ratios, especially in the secured segment. These factors have also encouraged banks to trade in longer maturities.
The qualitative part of the European Central Bank’s (ECB) survey also shows that perceived market liquidity generally worsened compared with last year. The efficiency of the secured and unsecured market segments as well as that of the short-term securities market was perceived to have remained broadly unchanged, while the efficiency of the derivatives market was seen as having deteriorated slightly.