Officials at almost one-third of 22 institutions who participated in a December senior credit officer survey reported increased demand for funding of agency residential mortgage-backed securitizations, according to the Board of Governors of the Federal Reserve.

“While the terms applicable to the funding of the various types of securities covered in the survey were reported to have generally changed little over the past three months, an uptick in demand for financing was evident,” the survey said.

Additionally, the markets for nonagency residential mortgage-backed securitizations and commercial mortgage-backed securitizations posted better functioning and liquidity, the report added.

Click on the graph to view liquidity and functioning improvement.

Fractions of respondents ranging between one-fifth and one-fourth of those surveyed indicated more demand for term funding — funding with a maturity of 30 days or more — for agency RMBS, nonagency RMBS, CMBS and consumer asset-backed securities.

Click on the chart to view demand for RMBS funding.

The survey collected qualitative information on changes over the last three months in credit terms and conditions in securities financing as well as over-the counter derivatives markets. 

Two sets of special questions were asked in the survey, including “concerned prospects for changes in cash management strategies upon the expiration at the end of this year of the provision in the Dodd–Frank Wall Street Reform and Consumer Protection Act that extended unlimited deposit insurance on noninterest-bearing transaction accounts.” 

About fourth-fifths of respondents indicated that their own institutions are unlikely to reduce deposit volumes held at commercial banks. Although, dealers projected clients to be more alert to the expiration of the unlimited guarantee. 

“The clients who respondents anticipated would reduce deposits held at commercial banks were expected to increase their use of repurchase agreements, money market funds, and Treasury bills and other government securities,” the survey said. 

Derivatives transactions remained primarily unchanged over the past three months for hedge funds.

However, almost one-fifth of dealers noted an increase in the intensity of efforts to negotiate “more-favorite price and nonprice terms over the same period.” 

Similarly, price and nonprice terms offered to trading real estate investment trusts remained basically unchanged.

“A few dealers indicated that price terms had tightened somewhat, for which diminished availability of dealer balance sheet or capital was the most cited reason,” the survey said.


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