Other regulatory measures, such as the LCR or the NSFR, are found to have had no statistically significant impact so far on repo volumes. The study also highlights that the more significant falls in banks’ outstanding repo volumes at year-end are likely to have also been driven by additional factors, such as contributions to the single resolution fund or national bank levies. These findings are not the final word on the matter, of course. The repo market is in a state of transition as the report by a study group of the Committee on the Global Financial System (CGFS), chaired by Bank of England Deputy Governor Jon Cunliffe, recently concluded. In this respect, the CGFS also recommended in April that a further study on repo markets be undertaken within the next two years. This means that policymakers will continue to closely monitor developments in repo markets and financial markets more generally. Some effects can only be thoroughly assessed once the reforms have been implemented more meaningfully, while others may become clearer at an earlier stage. For example, it seems undisputable that regulatory reforms have contributed to temporary volatility in repo market activity on reporting dates. Specifically, window-dressing behaviour of banks appears a likely unintended effect of regulation. I would therefore encourage further analysis of methods that could help reduce volatility and thereby contribute to a smoother functioning of markets.
Benoît Cœuré: Asset purchases, financial regulation and repo market activity Speech by Mr Benoît Cœuré, Member of the Executive Board of the European Central Bank, at the ERCC General Meeting on "The repo market: market conditions and operational challenges", Brussels, 14 November 2017. * * * Let me thank the organisers for inviting me here today.1 The repo market is a cornerstone in the transmission of monetary policy. In its traditional role, it is a prime short-term funding market for banks. Before the outbreak of the global financial crisis, secured transactions accounted for around a third of the daily turnover in euro area money markets according to money market statistical reporting (MMSR) data. Today, their share is closer to two-thirds. Movements in short-term repo rates therefore change the market-based financing conditions for banks and, hence, their conditions for trading with their ultimate customers – firms and households. This means that repo rates are a prime channel through which changes in the monetary policy stance are transmitted to the broader financial market and the real economy. In addition, the repo market plays an important intermediation role in the financial system by being the main vehicle for sourcing and financing government bonds. In this role, the repo market critically supports the liquidity of the bond market. It offers investors the possibility to finance long positions and to borrow securities to deliver into short positions. Interruptions in the repo market may therefore affect the entire term structure of interest rates.