WASHINGTON (MNI) – The following is the second and final part of
excerpts from the Federal Reserve’s September Senior Credit Officer
Opinion Survey on Dealer Financing Terms published Monday. The survey
provides information on changes over the previous three months in credit
terms and conditions in securities financing and over-the-counter
derivatives markets:

Dealers and other financial intermediaries. In the September
survey, three-fourths of respondents reported that the amount of
resources and attention devoted to management of concentrated exposures
to dealers and other financial intermediaries had increased over the
past three months.

Central counterparties and other financial utilities. More than
one-half of respondents indicated that the amount of resources and
attention devoted to management of concentrated exposures to central
counterparties and other financial utilities had increased over the past
three months. Several of these entities were downgraded as a direct
consequence of the U.S. sovereign downgrade by Standard & Poors,
perhaps contributing to the increase in resources and attention
reportedly brought to bear.

Hedge funds. The survey responses reflected, on balance, a slowing
over the past three months in the easing of credit terms offered to
hedge funds that had been evident since the inaugural survey in June
2010.4 In contrast with previous surveys, responses did not indicate any
net easing of price terms. However, a net fraction of almost one-fourth
of respondents, a significantly smaller share than in the June 2011
survey, reported having eased nonprice terms offered to hedge funds
(including haircuts, maximum maturity, covenants, cure periods,
cross-default provisions, or other documentation features) across all
types of transactions covered in the survey. The institutions that
reported an easing of terms pointed to more-aggressive competition from
other institutions as the main reason for the changes. About one-half of
dealers continued to note an increase in the intensity of efforts by
hedge funds to negotiate more-favorable price and nonprice terms over
the past three months. Forty percent of respondents, on net, reported
that the use of financial leverage by hedge funds, considering the
entire range of transactions facilitated, had decreased somewhat over
the past three months. Dealers also reported that the availability of
additional unutilized financial leverage under agreements currently in
place with hedge funds was little changed over the past three months.
This response stands in contrast with the June survey, which indicated
that hedge funds unused financing capacity had increased since the
beginning of 2011.

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** Market News International Washington Bureau: 202-371-2121 **

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