International banks have used a record amount of Spanish government bonds as collateral for repo loans, the Financial Times reported August. 26.
Repurchase agreements are the key area for bank funding in Europe, write reporters David Oakley in London and Victor Mallet in Madrid.
A main reason for the willingness of banks to accept Spanish bonds as collateral is because LCH.Clearnet, a London-based clearing house for repos and other transactions, began clearing services for Spanish government bonds and repos August 9, according to the Financial Times. Eurex Repo, a German clearinghouse, also has begun accepting Spanish bonds as collateral.
The record use of Spanish government bonds as collateral shows that confidence in Madrid is rising,and it could lessen Spanish banks’ reliance on loans from the European Central Bank, write Oakley and Mallet.