The European Central Bank released the results of its September 2026 survey on credit terms and conditions in euro-denominated securities financing and OTC derivatives markets. The review period, covering June to August 2026, occurred amidst uncertainty linked to the conflict in the Middle East and volatile energy prices. During this time, the ECB raised key interest rates by 25 basis points in June and held them unchanged in July. Overall credit terms and conditions eased slightly for all counterparty types, extending the easing trend recorded in the previous three survey rounds. This change was mainly reflected in price terms; non-price terms eased slightly for banks and dealers, tightened slightly for hedge funds, and remained unchanged for other counterparty types.
In securities financing transactions, demand for funding secured against most collateral types increased, led by equities with a net 27% of respondents reporting higher demand. Financing rates and spreads increased for most-favoured clients across all collateral types, while increases for average clients were limited to domestic government bonds, other government bonds, and convertible securities. Conversely, haircuts decreased for most bond collateral types and asset-backed securities, and the maximum amount and maturity of funding available to counterparties increased for some collateral types. For non-centrally cleared over-the-counter derivatives, initial margin requirements decreased slightly for foreign exchange, interest rate, equity, and several credit derivative types. Liquidity and trading deteriorated for equity and commodity derivatives but improved slightly for credit derivatives referencing sovereigns. The survey is based on responses from 26 large banks, comprising 14 euro area banks and 12 banks with head offices outside the euro area.
The slight easing of credit terms across all counterparty types suggests that market participants are prioritizing competitive pricing over stricter non-price conditions, even as geopolitical tensions and energy volatility persist. The divergence between price and non-price terms, particularly the tightening for hedge funds versus the easing for banks and dealers, indicates a nuanced risk assessment where institutions differentiate their exposure strategies based on counterparty type rather than applying uniform restrictions. Increased demand for equity-collateralized funding alongside rising financing rates for most-favoured clients highlights a complex dynamic where liquidity preferences shift toward high-beta assets despite cost pressures.
Market structure implications emerge from the mixed changes in central counterparty usage and the deterioration of liquidity in equity and commodity derivatives. While initial margin requirements decreased for several derivative types, the increase in valuation disputes for credit derivatives signals potential friction in collateral management and dispute resolution mechanisms. The persistence of these disputes, combined with unchanged volumes and durations in securities financing, suggests that operational risks remain stable but unresolved. Stakeholders should monitor whether the continued reliance on price-based competition sustains this easing trend or if broader macroeconomic instability eventually forces a re-tightening of non-price terms.
