WASHINGTON (MNI) – The following is the second and final part of an
excerpts 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:
Counterparty Types
(Questions 1-17)
Dealers and other financial intermediaries. As in previous surveys,
a significant majority of respondents reported that the amount of
resources and attention devoted to management of concentrated exposures
to dealers and other financial intermediaries had remained basically
unchanged over the past three months, although one-fourth of respondents
pointed to an increase. More than one-half of respondents also
characterized the volume of mark and collateral disputes with dealers
and other financial intermediaries as basically unchanged over the
previous three months. A modest net fraction of dealers, however,
pointed to a decrease.
Hedge funds, private equity firms, and other similar private pools
of capital. As has been true since the inaugural survey in June of last
year, dealers reported, on net, that they had provided somewhat
more-favorable credit terms over the past three months to hedge funds,
private equity firms, and other similar private pools of capital
(private pools of capital) across all types of transactions covered in
the survey. Forty percent of respondents eased somewhat their price
terms, including, most importantly, financing rates. A similar fraction
of institutions indicated that they had eased somewhat their nonprice
terms, which include haircuts, maximum maturity, covenants, cure
periods, cross-default provisions, or other documentation features. As
in previous surveys, the institutions that reported an easing of terms
pointed to more-aggressive competition from other institutions, an
improvement in general market liquidity and functioning, and, to a
lesser extent, an improvement in the current or expected financial
strength of counterparties as the main reasons for the changes. More
than one-half of the respondents to the June survey noted an increase in
the intensity of efforts by private pools of capital to negotiate
more-favorable price and nonprice terms over the past three months.
Looking forward over the next three months, a majority of dealers
expected price and nonprice terms applicable to private pools of capital
to remain basically unchanged, while one-fifth of respondents, on
balance, indicated that they anticipated further easing of terms.
Insurance companies, pension funds, and other institutional
investors. The survey responses suggested that, on balance, dealers also
provided more-favorable credit terms for insurance companies, pension
funds, and other institutional investors (institutional investors) over
the past three months. About one-third of respondents indicated that
they had eased price terms for such counterparties, while one-fourth of
dealers noted an easing of nonprice terms. The most important reasons
cited for the easing of credit terms were more-aggressive competition
from other institutions and an improvement in general market liquidity
and functioning. Increased willingness to take on risk was also noted as
an important reason for the change. Nearly one-third of dealers reported
an increase in the intensity of efforts by institutional investors to
negotiate more-favorable price and nonprice terms over the past three
months. Looking forward over the next three months, one-fifth of
respondents, on net, expected credit terms applicable to institutional
investors to ease somewhat further.
Nonfinancial corporations. The responses to questions about credit
terms applicable to nonfinancial corporations also pointed to some
easing over the past three months. About one-third of respondents
indicated that they had eased price terms for such counterparties; by
contrast, nonprice terms were generally little changed. As was the case
for private pools of capital and institutional investors, the most
important reasons cited for the easing were more-aggressive competition
from other institutions and an improvement in general market liquidity
and functioning. An improvement in the current or expected financial
strength of counterparties was also cited as an important reason for the
change. Onefourth of respondents indicated that there had been an
increase in the intensity of efforts by nonfinancial corporations to
negotiate more-favorable price and nonprice terms over the past three
months. Looking forward over the next three months, the majority of
dealers noted that they expected credit terms to remain basically
unchanged, although one-fourth of respondents, on balance, indicated
that they anticipated somewhat looser terms.
(2 of 2)
** Market News International Washington Bureau: 202-371-2121 **
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