Constancio Says Must Monitor Rising Secured Money-Market Lending

European Central Bank Vice President Vitor Constancio said policy makers are relying on new data to analyze the impact of increasing secured lending between financial institutions on the transmission of monetary policy.

“If the unsecured money market will continue to shrink and lose importance in relation to the secured money market activity, then the implementation framework of monetary policy will lose some traction,” Constancio told lawmakers in Brussels today. “We really are vitally interested in following detailed information on what’s going on” with regard to “the increase in secured lending in the money markets.”

A global initiative, coordinated by the Committee on the Global Financial System, to conduct a qualitative quarterly survey on credit terms and conditions in euro-denominated securities lending and OTC derivatives markets “will be of some help,” Constancio said. The ECB said yesterday that secured and unsecured money markets have become increasingly impaired as a result of the financial crisis.

Constancio also proposed the creation of a European-Union wide central database for repurchasing agreements, “similar to the model in the U.S.”

“The EU would be well placed for central data gathering for the repo markets,” Constancio said.

Repurchase agreements are contracts where one investor agrees to sell a security and then buy it back at a future date and a fixed price. The trades, known as repos, are one of several so-called shadow banking activities being targeted by the Group of 20 nations on concerns they may be used to evade a clampdown on excessive risk taking.

To contact the reporters on this story: Jennifer Ryan in London at; Jana Randow in Brussels at

To contact the editor responsible for this story: Craig Stirling at

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