WASHINGTON (MNI) – The following is the an excerpt from the Federal
Reserve’s June 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:

Summary

The June 2011 Senior Credit Officer Opinion Survey on Dealer
Financing Terms collected qualitative information on changes over the
previous three months in credit terms and conditions in securities
financing and over-the-counter (OTC) derivatives markets. In addition to
the core set of questions, this survey included special questions
dealing with three topics of current interest. The first set of special
questions queried respondents about current levels and changes since the
beginning of 2011 in clients unused financing capacity under the terms
of existing agreements. The second set focused on changes over the past
year in funding of less-liquid assets, differentiating across classes of
counterparties, and types of such assets. The last special question
asked for respondents assessments of the current use of leverage by
client types, adopting the pre-crisis peak and post-crisis trough as
reference points. The 20 institutions participating in the survey
account for almost all of the dealer financing of dollardenominated
securities for nondealers and are the most active intermediaries in OTC
derivatives markets. The survey was conducted during the period from May
23, 2011, to June 3, 2011. The core questions asked about changes
between March 2011 and May 2011.

Overall, respondents to the June 2011 survey pointed to a continued
gradual easing in credit terms with respect to major classes of
counterparties, including hedge funds and other private pools of
capital, insurance companies and other institutional investors, and
nonfinancial firms. Reasons cited as most important across the major
classes of counterparties in explaining the easing of terms were
more-aggressive competition from other institutions and an improvement
in general market liquidity and functioning. Most dealers indicated
that the time and attention devoted to managing concentrated credit
exposures to other dealers remained basically unchanged, although a
minority of respondents reported an increase in resources allocated to
such activity. As in prior surveys, responses to questions regarding OTC
derivatives trades pointed to little change over the past three months
in the terms for both “plain vanilla” and customized derivatives. With
respect to securities financing, respondents reported an easing of some
financing terms for a broad spectrum of securities, including high-grade
corporate bonds, equities, agency residential mortgage-backed securities
(RMBS), and asset-backed securities (ABS) other than RMBS. As in the
March 2011 survey, the reported easing of terms over the past three
months was generally evident for both average and mostfavored clients
but much more pronounced for the latter group. Dealers also noted that
demand for funding for the types of securities covered in the survey,
with the exception of equities, had increased over the past three
months. Finally, the results of the June survey indicated that the
volume of mark and collateral disputes, often viewed as a leading
indicator of market stress, remained generally unchanged across the
entire range of counterparty and transaction types covered by the
survey.

With respect to the special questions about additional funding
capacity under existing agreements, large net fractions of respondents
indicated that there was at least some unused capacity for all types of
clients, and that unused capacity had generally increased since the
beginning of 2011. With regard to funding of less-liquid assets,
responses to the special questions on this topic generally reported an
increase in such funding over the past year for all specified types of
counterparties. In characterizing the types of less-liquid collateral
being funded in greater amounts, high-yield corporate bonds, legacy
non-agency RMBS, and legacy commercial mortgage-backed securities (CMBS)
were most frequently cited. Finally, the current use of leverage was
generally characterized as “roughly in the middle” — between the
pre-crisis peak and the post-crisis trough — in response to a special
question soliciting such an assessment.

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

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