WASHINGTON (MNI) – There was no significant change in dealer credit
terms from June through August but terms eased slightly for REITs and
institutional investors and, in contrast to the previous report, the
functioning of the MBS markets “improved somewhat,” according to a
survey of 22 banks’s credit officers, the Federal Reserve said Tuesday.

“Sizable net fractions of respondents indicated that the provision
of differential terms to most-favored hedge funds and trading REITs —
that invest in assets backed by real estate — had increased over the
past three months,” the survey suggested.

“With regard to securities financing, notable fractions of dealers
indicated that demand for funding of agency and of non-agency
residential mortgage-backed securities (RMBS) had increased over the
past three months,” the report said.

Nearly two thirds of dealers indicated that, just as in the
previous survey, they had again increased the amount of resources and
attention devoted to the credit exposure of central counterparties and
other financial utilities.

For hedge funds, the price of financing and the non-price items
like haircuts and maximum maturities were “basically unchanged” and
about a quarter of the dealers noted hedge funds intensified their
efforts to get better terms.

In contrast to earlier in the year, hedge funds’ use of financial
leverage had remained the same and not been reduced.

“A few dealers indicated that they had eased nonprice terms offered
to mutual funds, exchange traded funds, pension plans and endowments
over the past three months,” the report said.

Asked about collateral posted by dealers’ clients as initial margin
against OTC derivatives, nearly one half of the dealers said the share
that was cash was greater than 80%. “U.S. Treasury securities were of
more modest importance, with about two-thirds of dealers reporting that
both Treasury bills and longer-maturity Treasury notes and bonds
constituted less than 10% of the collateral,” the report said.

The survey is known as the SCOOS, the acronym for the Senior
Credit Officer Opinion Survey on Dealer Financing Terms.

** MNI Washington Bureau: 202-371-2121 **

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