The survey also found that changes to central counterparties’ (CCPs) margin requirements and other practices contributed to the tightening; that banks devoted more resources to managing concentrated credit exposures in the period; and that hedge funds’ use of leverage increased.
Additionally, the ECB reported that margin requirements increased for most types of non-centrally cleared OTC derivatives, and that liquidity and trading conditions deteriorated for various derivatives, including equity, interest rate and certain credit derivatives.
A small majority of respondents also said that they expect overall credit terms to continue to tighten for the period from December to February, across all market counterparty segments — including banks and investment dealers, investment funds, hedge banks, insurers and sovereigns.
Finally, the survey found that banks stepped up their market-making activities over the past year, and that this is expected to continue in the year ahead.
“Overall market-making activities, including both debt securities and derivatives, were expected to increase broadly in 2025,” it noted.
An increased willingness to take on risk was cited a central factor in expanding market-making activity in the year ahead, along with “the growing importance of electronic trading platforms and the profitability of market-making,” the report said.
“Respondents expressed confidence in their ability to act as market-makers in times of stress for all types of debt securities and derivatives,” it added.