Growth in the European repo market has stalled, according to a latest survey from the International Capital Markets Association (ICMA), as banks are yet to find an appetite for financing.
The survey, which outlines the amount of repo business outstanding from the first half of the year, set the market size at €5,612 billion, a 2.9% decline year-on-year.
In addition, the share of tri-party repo feel to 10%, with the outstanding value of tri-party repo reported directly by the major tri-party repo agents in Europe fell 0.8% to €1,376 billion.
“Together with the decline in the share of GC financing, the weakness of tri-party repo and the overall shift from repo to reverse repo would suggest that banks had less need for funding, perhaps as a result, at least in part, of quantitative easing by central banks,” the survey says.
The survey also found there was a drop in the share of all government bonds within the pool of EU-originated fixed income collateral, falling from 81.5% to 77%. This change was driven somewhat by an increase in non-government bond and equity collateral.
“The repo market in Europe is not growing in line with underlying conditions. Increased bond issuance, extraordinary excess liquidity from LTROs and QE and increasing demand for collateral driven by regulation might reasonably have been expected to produce an increase in repo trading,” says Godfried De Vidts, chairman, ICMA European Repo Council.
“The secured financing business is already facing significant pressure as the implementation of regulatory initiatives such as the Leverage Ratio, Net Stable Funding Ratio, Central Securities Depositories Regulation and Bank Recovery and Resolution Directive begin to bite. A further qualitative study on repo in Europe, to be released next month, will give us greater insight into the profound changes underlying these aggregated figures.”