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Volumes in European repo market are stabilizing, survey shows

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The size of the European repo market was EUR4,868bn in June 2009, representing a small increase of 5.1 per cent from December 2008 and an annual decline of 20 per cent from the June 200

The size of the European repo market was EUR4,868bn in June 2009, representing a small increase of 5.1 per cent from December 2008 and an annual decline of 20 per cent from the June 2008 figure of EUR6,504bn, according to a survey by the European Repo Council of the International Capital Market Association.
 
The figure represents the volume of repo trades outstanding on a single day in June 2009, based on returns received from 61 financial institutions.

The overall figure points to activity in the repo market stabilising in the wake of the Lehman’s collapse almost a year ago and the subsequent deleveraging by banks.

However, underlying the aggregate figures showing a modest recovery in the sector, the survey paints a mixed picture, with individual institutions in very different situations, a number of whom are still deleveraging by substantial amounts, while others are demonstrating a greater appetite for risk. Mergers between institutions continue to be a factor in limiting the capacity of the repo market for growth.
 
As an indicator of lessons learned in the crisis, the share of undocumented buy/sell-backs in the survey fell to only 3.9 per cent of the sample, indicating the greater importance that is being placed on documentation such as the global master repurchase agreement since Lehman’s collapse.
 
Godfried De Vidts, chairman of ICMA’s European Repo Council, says: ‘The European repo market has demonstrated its inherent stability in difficult times in spite of a fragmented settlement infrastructure, in contrast to the repo market in the US where gaps in the infrastructure have contributed to greater fragility. The current survey suggests that volumes in the repo market have stabilised following the shock of Lehman’s collapse last year, although growth continues to be limited by the banks’ requirement for financing. We anticipate that as central banks scale down their efforts in support of the financial market we will see increased activity in wholesale repo.

‘In line with the EU Commission work on clearing and settlement, many improvements can still be made to provide a better infrastructure for the product. The ERC continues to focus on the development of financing tools in co-operation with the triparty agents and CCPs in Europe that should result in a better use of resources.’

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