Survey on credit terms and conditions in euro-denominated securities financing and OTC derivatives markets (SESFOD)
Source: European Central Bank. Survey on Credit Terms and Conditions in Euro Denominated Securities Financing and OTC Derivatives Markets (sesfod). Original PDF, unchanged; available free from the publisher. No affiliation or endorsement.
Full report
Reading view
Read report text excerpt
Text extracted from the opening pages of the original report. Read the PDF above for the complete report, charts and tables.
Original report — page 1
Survey on credit terms and conditions in euro-denominated securities financing and OTC derivatives markets (SESFOD) December 2025 The Eurosystem conducts a three-monthly qualitative survey on credit terms and conditions in euro-denominated securities financing and over-the-counter (OTC) derivatives markets. This survey is a follow-up to a recommendation by a Committee on the Global Financial System (CGFS) study group. 1 The survey is part of an international initiative to collect information on trends in the credit terms offered by firms operating in the wholesale markets and insights into the main drivers of these trends. The information collected is valuable for financial stability, market functioning and monetary policy purposes. The survey questions are grouped into three sections: 1. counterparty types – credit terms and conditions for various counterparty types in both securities financing and OTC derivatives markets; 2. securities financing – financing conditions for various collateral types; 3. non-centrally cleared OTC derivatives – credit terms and conditions for various derivative types. The survey focuses on euro-denominated instruments in securities financing and OTC derivatives markets. For securities financing, the survey refers to the euro-denominated securities against which financing is provided, rather than the currency of the loan. For OTC derivatives, at least one of the legs of the contract should be denominated in euro. Survey participants are large banks and dealers active in the targeted euro-denominated markets. Reporting institutions should report on their global credit terms, for this reason the survey is aimed at senior credit officers responsible for maintaining an overview of the management of credit risks. Where material differences exist across different business areas – for example between traditional prime brokerage and OTC derivatives – responses should refer to the business area that generates the most exposure. 1 Committee on the Global Financial System, “The role of margin requirements and haircuts in procyclicality”, CGFS Papers, No 36, Bank for International Settlements, March 2010. 1
Original report — page 2
Credit terms are reported from the perspective of the firm as a supplier of credit to customers, rather than as a receiver of credit from other firms. The questions focus on how terms have tightened or eased over the past three months (regardless of longer-term trends), why terms have changed and expectations for the future. Firms are encouraged to answer all questions, unless specific market segments are of minimal importance to their business. The font colour for the net percentages of respondents reported in the tables in this document is either blue or red, reflecting, respectively, a tightening/deterioration or an easing/improvement of credit terms and conditions in the targeted markets. 2
Original report — page 3
December 2025 SESFOD results (Review period from September 2025 to November 2025) The December 2025 survey on credit terms and conditions in euro-denominated securities financing and OTC derivatives markets (SESFOD) reports qualitative changes in credit terms between September 2025 and November 2025. Responses were collected from a panel of 26 large banks, comprising 14 euro area banks and 12 banks with head offices outside the euro area. Overview of results Overall credit terms and conditions remained broadly stable, with only a slight net easing, primarily driven by price terms. Non-price terms were largely unchanged. Respondents cited general market liquidity conditions as the main source of easing pressures, followed by competitive dynamics and counterparty financial strength. Looking ahead to the first quarter of 2026, survey participants expected a noticeable tightening in funding conditions, especially on price terms, with hedge funds expected to be most affected. Furthermore, the survey indicates only limited recent changes in leverage availability, negotiation intensity and valuation disputes, and almost no change in the management of concentrated credit exposures. Financing conditions by collateral type showed mixed developments. Maximum funding amounts increased for government, sub-national, supra-national, corporate and covered bond collateral, but declined slightly for equities and convertibles. Maximum maturities lengthened across most collateral types. Haircuts rose marginally for funding secured against domestic and high-quality government bonds, as well as equities, but were otherwise stable. Financing rates/spreads increased across nearly all collateral types, in tandem with a broad-based rise in demand for funding. Liquidity and functioning of collateral markets changed minimally. For non-centrally cleared OTC derivatives, terms and conditions remained largely stable. Initial margins were mostly unchanged, with negligible net reductions for most products and a very slight increase for derivatives on structured credit. Maximum exposures and maturities saw small net increases for interest rate and credit derivatives and a minor decrease for equity derivatives. Liquidity and trading conditions were steady overall, though some respondents reported slightly more and longer valuation disputes, in particular regarding commodity derivatives. Market-making activity changed only moderately over the past year, with increased activity in debt securities overall, derivatives and high-quality government-related bonds, and slight declines in other government, corporate, covered and convertible bonds. For 2026 a net positive share of respondents expected to increase market- making across all major instrument classes, particularly in debt securities, driven mainly by greater willingness to take on risk, competition from other institutions, and balance sheet availability. A slight majority reported a good or moderate ability to act as market-makers in stressed conditions, especially in derivatives, though this ability 3
Original report — page 4
has weakened somewhat for several instruments compared with last year. Willingness to take on risk and balance sheet capacity emerged as key determinants of both the strength and limitations of banks’ market-making capabilities. Credit terms and conditions for various counterparty types in both securities financing and OTC derivatives markets Overall credit terms and conditions remained largely unchanged between September 2025 and December 2025, with a slight easing of price terms across most counterparties. Overall, a minor net easing was reported by respondents, stemming primarily from easing pressures across banks and dealers (Chart A, panel a). Instances of easing were observed for price terms across all counterparties except hedge funds. Non-price terms tightened slightly for hedge funds but remained unchanged for all other counterparty types. General market liquidity conditions was reported as the main driver of tightening pressures, followed by competition from other institutions and the financial strength of counterparties (Chart B). One participant highlighted that the practices of central counterparties (CCPs) also contributed somewhat to tightening. Survey respondents expected funding conditions to tighten in the three months ahead, i.e. in the first quarter of 2026 (Chart A, panel b). Tightening expectations were especially pronounced regarding price terms, with a net 17% of survey respondents expecting tightening across all counterparties. Hedge funds, in particular, were expected to face tighter credit terms. This was indicated by a net of 25% of survey respondents for price terms, and a net of 15% for non-price terms. Chart A Observed and expected changes in overall credit terms offered to counterparties across all transaction types a) Observed changes overall b) Expected changes overall (net percentages of survey respondents) (net percentages of survey respondents) Banks and dealers Banks and dealers Hedge funds Hedge funds Insurance companies Insurance companies Investment funds (incl. ETFs), pension plans and other institutional Investment funds (incl. ETFs), investment pools pension plans and other Non-financial corporations institutional investment pools Sovereigns Non-financial corporations 16 Sovereigns 16 Net tightening Net tightening 14 14 12 12 10 10 8 8 6 6 4 4 2 2 0 0 -2 -2 -4 -4 Net easing Net easing -6 -6 Q4 2024 Q1 2025 Q2 2025 Q3 2025 Q4 2025 Q1 2026 Source: ECB. 4
Original report — page 5
Note: Net percentages are calculated as the difference between the percentage of respondents reporting “tightened somewhat” or “tightened considerably” and the percentage reporting “eased somewhat” or “eased considerably”. Chart B Observed changes in price and non-price credit terms and their drivers a) Drivers of changes in price credit terms b) Drivers of changes in non-price credit over the past two years terms over the past two years (net percentages of survey respondents) (net percentages of survey respondents) Adoption of new market conventions Adoption of new market conventions Availability of balance sheet at your institution Availability of balance sheet at your institution Competition from other institutions Competition from other institutions Current or expected financial strength of counterparties Current or expected financial strength of counterparties General market liquidity and functioning General market liquidity and functioning Internal treasury charges for funding Internal treasury charges for funding Other or unknown Other or unknown Willingness of your institution to take on risk Willingness of your institution to take on risk Calculated summary value Calculated summary value 10 10 Net tightening Net tightening 8 5 6 4 0 2 -5 0 -2 -10 -4 -15 Net easing -6 Net easing Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2024 2024 2024 2024 2025 2025 2025 2025 2024 2024 2024 2024 2025 2025 2025 2025 Source: ECB. Note: Net percentages are calculated as the difference between the percentage of respondents reporting “tightened somewhat” or “tightened considerably” and the percentage reporting “eased somewhat” or “eased considerably”. Only a few net changes were reported for credit terms across counterparty types in securities financing and OTC derivatives markets. The availability of unutilised leverage decreased marginally for hedge funds, while the use of financial leverage remained unchanged across all counterparties. Moreover, the survey points to little noteworthy change in the intensity of efforts made to negotiate more favourable terms and in the provision of differential terms for most-favoured clients, with only slight increases reported across all counterparties. Valuation disputes also remained basically unchanged compared with the previous period. Only one respondent highlighted an increase in the resources and attention dedicated to the management of concentrated credit exposures. Financing conditions for various collateral types Noticeable changes were reported for the maximum amount of funding made available to counterparties, but these changes diverged across collateral types (Chart C). For credit secured by government, sub-national and supra-national bonds, the maximum amount of funding increased somewhat for both average and most-favoured clients. Minor increases were also reported for corporate and covered bonds. In contrast, slight decreases were reported for credit secured by equities and convertible securities. 5
Original report — page 6
Chart C Changes in maximum amount of funding for average clients by collateral type (Net percentages of survey respondents, inverted) Asset-backed securities High-quality financial corporate bonds Convertible securities High-quality government, sub-national and supra-national bonds Covered bonds High-quality non-financial corporate bonds Domestic government bonds High-yield corporate bonds Equities Other government, sub-national and supra-national bonds -25 Net increase -20 -15 -10 -5 0 5 10 15 20 Net decrease 25 Q4 2024 Q1 2025 Q2 2025 Q3 2025 Q4 2025 Source: ECB. Note: Net percentages are calculated as the difference between the percentage of respondents reporting “decreased somewhat” or “decreased considerably” and the percentage reporting “increased somewhat” or “increased considerably”. Responses to the question on the maximum maturity of funding offered, showed increases across most collateral types. For both average and most- favoured clients, the maximum maturity increased across all collateral types except for convertible securities, for which a very slight decrease was noted. Haircuts increased marginally across multiple types of collateral but remained unchanged in most cases. This slight increase was mentioned for funding secured against domestic and high-quality government bonds, as well as equities, for both average and most-favoured clients. Financing rates/spreads increased for funding secured against all collateral types except asset-backed securities (Chart D). The increases were reported most often for domestic government bonds, high-quality government bonds, and equities, with at least net 20% of respondents highlighting an increase for these collateral types. Interestingly, changes in financing rates/spreads have shown strong co-movement historically. This was also observable in this reporting period, with both increases in financing rates and higher demand for funding across (nearly) all types of collateral. 6
More from source