International Capital Market Association Reports on European Repo Market
Commentary by Steven Lofchie
In its 29th semi-annual "European Repo Market Survey," the International Capital Market Association ("ICMA") reported that the trend in European repurchase agreement ("repo") activities is "still essentially sideways."
The findings of the survey included this fact and observation:
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Concentration Analysis. There was an increase in the concentration of business in the top 10 survey respondents, "reflecting the very significant increases in the repo books of a few of the very largest banks."
In light of these results, the survey stated, "it is a valid question to ask why these banks have apparently been able to buck the cumulative impact of restrictive new regulation, possible constraints imposed by quantitative easing and subdued underlying economic and financial conditions."
Commentary
Legislators and regulators have constructed a complicated and burdensome regulatory system that imposes massive fixed costs on firms. At the same time, they have championed central clearing and the general standardization of financial products. Isn't it obvious that the combination of high fixed costs and product standardization results in small and medium sized firms losing business because they lack the scale to support the fixed costs and have no way to distinguish themselves with different products?