ECB survey: euro credit terms ease for fourth quarter as hedge funds' leverage rises

• 2026-10-19
• News
• News Desk
• Source: European Central Bank https://www.ecb.europa.eu/press/pr/date/2026/html/ecb.pr261007~6447350434.en.html

Credit terms and conditions for euro-denominated securities financing and over-the-counter derivatives eased slightly for all counterparty types in the three months to August 2026, the European Central Bank said, extending an easing trend that has now run for four consecutive quarters. The ECB published the findings in its September 2026 Survey on credit terms and conditions in euro-denominated securities financing and OTC derivatives markets (SESFOD), which drew responses from 26 large banks.

Key facts

What drove the easing?

• The September 2026 SESFOD survey covered the reference period from June to August 2026 and was based on responses from 26 large banks, comprising 14 euro area banks and 12 banks with head offices outside the euro area.
• Credit terms and conditions eased slightly for all counterparty types for a fourth consecutive quarter, mainly through price terms.
• Demand for funding secured against most collateral types increased, led by equities, where a net 27% of respondents reported higher demand.
• Respondents expected a further slight overall easing for all counterparty types over the following three months.

The ECB said the relaxation was concentrated in price terms, while non-price terms eased slightly for banks and dealers, tightened slightly for hedge funds and were unchanged for other counterparty types. A small number of respondents attributed easier price terms to general market liquidity and functioning, competition from other institutions and the financial strength of counterparties.

The survey period ran through uncertainty linked to the conflict in the Middle East and volatile energy prices. Against that backdrop, the ECB raised its key interest rates by 25 basis points in June and left them unchanged in July. Where did demand rise?

In securities financing transactions, demand for funding secured against most collateral types increased, with equities in the lead. Financing rates and spreads rose for most-favoured clients across all collateral types; for average clients, increases were confined to domestic government bonds, other government bonds and convertible securities.

At the same time, haircuts fell for most bond collateral types and asset-backed securities, and the maximum amount and maturity of funding made available to counterparties increased for some collateral types. The use of central counterparties showed small and mixed changes. Liquidity and market functioning deteriorated slightly for equities and several corporate bond types, while the volume, duration and persistence of collateral valuation disputes were unchanged.

Hedge funds' use of leverage increased slightly, and the volume and persistence of counterparty valuation disputes held steady. What about derivatives?

In non-centrally cleared OTC derivatives, initial margin requirements decreased slightly for foreign exchange, interest rate, equity and several credit derivative types, and maximum exposures and trade maturities were broadly unchanged. Liquidity and trading deteriorated for equity and commodity derivatives but improved slightly for credit derivatives referencing sovereigns.

Valuation disputes increased for several derivative types, particularly credit derivatives, including for foreign exchange and credit derivatives, the ECB said. Terms in new or renegotiated master agreements eased slightly in some areas, while the posting of non-standard collateral was unchanged. What happens next?

The SESFOD survey is conducted four times a year and tracks changes in credit terms and conditions over three-month reference periods ending in February, May, August and November. The detailed data series and the survey guidelines are available on the ECB's website and can be visualised on the ECB Data Portal, the central bank said.

Source: European Central Bank