Frankfurt, Germany - November 09, 2020: European Central Bank ECB, EZB headquarters at Eastend Frankfurt, Germany. The European Central Bank (ECB) is the central bank of the Eurozone. Close-up of the logo in front of the building.
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Overall credit conditions tightened in the over-the-counter (OTC) derivatives markets and European securities markets in late 2024, according to new research from the European Central Bank (ECB).

In its latest industry survey of 27 large global banks, which was carried out in December, the central bank found that more stringent credit conditions were imposed between September and November, primarily due to deteriorating market liquidity.

The survey also found that changes to central counterparties’ (CCPs) margin requirements and other practices contributed to the tightening; that banks devoted more resources to managing concentrated credit exposures in the period; and that hedge funds’ use of leverage increased.

Additionally, the ECB reported that margin requirements increased for most types of non-centrally cleared OTC derivatives, and that liquidity and trading conditions deteriorated for various derivatives, including equity, interest rate and certain credit derivatives.

A small majority of respondents also said that they expect overall credit terms to continue to tighten for the period from December to February, across all market counterparty segments — including banks and investment dealers, investment funds, hedge banks, insurers and sovereigns.

Finally, the survey found that banks stepped up their market-making activities over the past year, and that this is expected to continue in the year ahead.

“Overall market-making activities, including both debt securities and derivatives, were expected to increase broadly in 2025,” it noted.

An increased willingness to take on risk was cited a central factor in expanding market-making activity in the year ahead, along with “the growing importance of electronic trading platforms and the profitability of market-making,” the report said.

“Respondents expressed confidence in their ability to act as market-makers in times of stress for all types of debt securities and derivatives,” it added.