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IMF Working Paper-The Impact of Derivatives Collateralization on Liquidity Risk: Evidence from the Investment Fund Sector
February 9, 2024--Summary:
Stricter derivative margin requirements have increased the demand for liquid collateral, but euro area investment funds, which use derivatives extensively, have been reducing their liquid asset holdings. Using transaction-by-transaction derivatives data, we assess whether the current levels of funds' holdings of cash and other highly liquid assets would be adequate to meet funds' liquidity needs to cover variation margin calls on derivatives under a range of stress scenarios.
The estimates indicate that between 13 percent and 33 percent of euro area funds with sizeable derivatives exposures may not have sufficient liquidity buffers to meet the calls under adverse market shocks. As a result, they are likely to redeem money market fund (MMF) shares, procyclically sell assets, and draw on credit lines, thus amplifying the market dynamics under such stress scenarios. Our findings highlight the importance of further work to assess the potential role of macroprudential policies for nonbanks, particularly regarding liquidity risk in funds.
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Source: imf.org
Boerse Stuttgart Records January Turnover Of Around EUR 8.5 Billion-Trading Volume Increases Compared To The Same Month Of The Previous Year -Growth In Structured Securities, Bonds And Exchange-Traded Products
February 2, 2024--Based on the order book statistics, Boerse Stuttgart generated turnover of around EUR 8,5 billion in January- around 11 percent more than in the same month of the previous year.
Structured securities made up the largest share of the turnover.
The trading volume in this asset class was around EUR 3,7 billion-an increase of around 9 percent compared to the previous month. Leverage products generated turnover of around EUR 2,7 billion.
Investment products contributed around EUR 985 million to the total turnover.
The monthly total for trading in debt instruments (bonds) was around EUR 1,7 billion in January, an increase of around 20 percent compared to the same month of the previous year. At around EUR 828 million, the lion's share of turnover in this asset class was attributable to corporate bonds.
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Source: boerse-stuttgart.de
ESAs recommend steps to enhance the monitoring of BigTechs' financial services activities
February 1, 2024--The European Supervisory Authorities (EBA, EIOPA and ESMA-the ESAs) today published a Report setting out the results of a stocktake of BigTech direct financial services provision in the EU. The Report identifies the types of financial services currently carried out by BigTechs in the EU pursuant to EU licences and highlights inherent opportunities, risks, regulatory and supervisory challenges.
The ESAs will continue to strengthen the monitoring of the relevance of BigTech in the EU financial services sector, including via the establishment of a new monitoring matrix.
In 2023 the ESAs, via the European Forum for Innovation Facilitators (EFIF), conducted a cross-sectoral stocktake of BigTech subsidiaries providing financial services in the European Union (EU) as a follow-up to the ESAs' 2022 response to the European Commission's Call for Advice on Digital Finance.
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Source: ESMA
ECB-Euro area bank interest rate statistics: December 2023
February 1, 2024--Composite cost-of-borrowing indicator for new loans to corporations broadly unchanged at 5.22%; indicator for new loans to households for house purchase decreased by 4 basis points to 3.97%, driven by interest rate effect.
Composite interest rate for new deposits with agreed maturity from corporations unchanged at 3.72%; interest rate for overnight deposits from corporations broadly unchanged at 0.84%
Composite interest rate for new deposits with agreed maturity from households broadly unchanged at 3.29%; interest rate for overnight deposi
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Source: ecb.europa.eu
ESMA consults on reverse solicitation and classification of crypto assets as financial instruments under MiCA
January 29, 2024--The European Securities and Markets Authority (ESMA), the EU's financial markets regulator and supervisor, today publishes two Consultations Papers on guidelines under Markets in Crypto Assets Regulation (MiCA), one on reverse solicitation and one on the classification of crypto-assets as financial instruments.
ESMA invites comments from stakeholders by 29 April 2024.
Consultation paper on guidelines on reverse solicitation
In this consultation, ESMA is seeking input on proposed guidance relating to the conditions of application of the reverse solicitation exemption and the supervision practices that National Competent Authorities (NCAs) may take to prevent its circumvention.
The proposed guidance confirms ESMA's previous message that the provision of crypto-asset services by a third-country firm is limited under MiCA to cases where the client is the exclusive initiator of the service. This exemption should be understood as very narrowly framed and must be regarded as the exception. A firm cannot use it to bypass MiCA.
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Source: ESMA
ECB-Monetary developments in the euro area: December 2023
January 26, 2024--Annual growth rate of broad monetary aggregate M3 increased to 0.1% in December 2023 from -0.9% in November
Annual growth rate of narrower monetary aggregate M1, comprising currency in circulation and overnight deposits, was -8.5% in December, compared with -9.5% in November
Annual growth rate of adjusted loans to households decreased to 0.3% in December from 0.5% in November
Annual growth rate of adjusted loans to non-financial corporations increased to 0.4% in December from 0.0% in November
Components of the broad monetary aggregate M3
The annual growth rate of the broad monetary aggregate M3 increased to 0.1% in December 2023 from -0.9% in November, averaging -0.6% in the three months up to December. The components of M3 showed the following developments. The annual growth rate of the narrower aggregate M1, which comprises currency in circulation and overnight deposits, was -8.5% in December, compared with -9.5% in November.
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Source: ecb.europa.eu
ECB-Euro area economic and financial developments by institutional sector: third quarter of 2023
January 26, 2024--Euro area net saving increased to €734 billion in four quarters to third quarter of 2023, compared with €685 billion one quarter earlier
Household debt-to-income ratio decreased to 88.1% in third quarter of 2023 from 94.3% one year earlier
Non-financial corporations' debt-to-GDP ratio (consolidated measure) decreased to 68.1% in third quarter of 2023 from 73.7% one year earlier
Total euro area economy
Euro area net saving increased to €734 billion (6.5% of euro area net disposable income) in the four quarters to the third quarter of 2023, as compared with €685 billion in the four-quarter period ending in the second quarter. Euro area net non-financial investment decreased to €564 billion (5.0% of net disposable income), mainly due to decreased investment by non-financial corporations.
Euro area net lending to the rest of the world grew to €216 billion (from €87 billion in the previous quarter), reflecting increased net saving and decreased non-financial investment. Net lending of non-financial corporations grew to €213 billion (1.9% of net disposable income) from €161 billion, and that of financial corporations increased to €102 billion (0.9% of net disposable income) from €92 billion.
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Source: ecb.europa.eu
Bitcoin ETF fee war spreads to Europe
January 23, 2024--Invesco and WisdomTree reduce fees on European-listed ETPs by more than 60%
Invesco and WisdomTree have slashed fees by more than 60 per cent on European bitcoin products as an "unprecedented" number of new exchange traded funds have become available to US investors.
The US Securities and Exchange Commission approved spot bitcoin ETFs this month from the likes of BlackRock, Fidelity and Invesco.
This has led to an "unprecedented supply of new products" for US investors, said Gary Buxton, Invesco head of ETFs for Europe, the Middle East and Africa, and Asia Pacific.
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Source: ft.com
ECB-Meeting of 13-14 December 2023 Account of the monetary policy meeting of the Governing Council of the European Central Bank
January 18, 2024--Held in Frankfurt am Main on Wednesday and Thursday, 13-14 December 2023
1. Review of financial, economic and monetary developments and policy options
Financial market developments
Ms Schnabel noted that since the Governing Council's previous monetary policy meeting on 25-26 October 2023 the narrative in financial markets had entirely turned around, proving once again its high sensitivity to incoming data and central bank communication.
Markets had turned bullish, driven by expectations of quick and "immaculate" disinflation and an early and sharp monetary policy reversal. This repricing had supported risk asset prices, with equity markets soaring and sovereign and corporate credit spreads narrowing amid continued smooth market absorption. Buoyant risk asset markets and a stronger euro exchange rate were consistent with investors pricing in a bottoming-out rather than a deterioration in the euro area's economic growth momentum.
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Source: ecb.europa.eu
Monetary Policy Pass-Through to Interest Rates: Stylized Facts from 30 European Countries
January 12, 2024--Summary:
The extent to which changes in monetary policy rates lead to changes in loan and deposit rates for households and firms, referred to as 'pass-through', is an important ingredient of monetary policy transmission to output and prices.
Using data on seven different bank interest rates in 30 European countries, different approaches, and the full sample as well as a subsample of euro area countries, we show that a) the pass-through in the post-pandemic hiking cycle has been heterogenous across countries and types of interest rates; b) the pass-through has generally been weaker and slower, except for rates of non-financial corporation loans and time deposits in euro area countries; c) differences in pass-through over time and across countries for most deposit rates are correlated with financial sector concentration, liquidity, and loan opportunities, and d) the effects of pass-through to outstanding mortgage rates on monetary transmission on prices and output are heterogenous across countries.
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Source: imf.org
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