WASHINGTON (MNI) – The following is the text of the summary of the
Federal Reserve’s Senior Credit Officer Opinion Survey published
Thursday. The survey provides information on credit in the securities
financing and the over-the-counter derivatives market:

The September 2010 Senior Credit Officer Opinion Survey on Dealer
Financing Terms

Summary

The September 2010 Senior Credit Officer Opinion Survey on Dealer
Financing Terms collected qualitative information on changes over the
previous three months in credit terms and conditions in securities
financing and over-the-counter (OTC) derivatives markets.1 In addition
to the core set of questions, the survey included three sets of special
questions. The first set queried respondents about changes in funding
conditions in the commercial mortgage-backed securities (CMBS) and
commercial real estate (CRE) markets since the beginning of 2010. The
second set focused on funding conditions in the collateralized loan
obligation (CLO) and bank loan markets. The last set asked dealers to
assess overall changes in their clients appetite to bear risk since the
beginning of 2010 and over the past three months. The 20 financial
institutions participating in the survey account for almost all of the
dealer financing of dollar-denominated securities to nondealers and are
the most active intermediaries in OTC derivatives markets. The survey
was conducted during the period from August 16, 2010, to September 3,
2010.

The core questions ask about changes between June 2010 and August
2010. Overall, the responses to the September survey indicated an easing
in credit terms across counterparty types and for a range of securities
financing transactions over the previous three months. Dealers also
noted an increase in demand for funding for most types of securities. By
contrast, respondents reported little change in the terms and conditions
prevalent in OTC derivatives markets over the reference period.2 In
particular:

Dealers indicated that they had loosened credit terms offered to
each of the distinct classes of counterpartiesXincluding hedge funds
and other private pools of capital, insurance companies and other
institutional investors, and nonfinancial firmsXconsidering all
transaction types covered in the survey taken together. Respondents also
noted an increase in the intensity of efforts by each class of clients
to negotiate more-favorable terms. Modest net fractions of dealers
suggested that they expected terms applicable to hedge funds and other
similar private pools of capital and to insurance companies and other
institutional investors to ease over the coming three months.

– Only a few respondents to the September survey indicated that
they had increased the amount of resources and attention devoted to
management of concentrated credit exposures to dealers and other
financial intermediaries, a notable contrast to results from the June
survey in which more than one-half of the respondents reported having
done so.

– Responses to questions about OTC derivatives transactions
suggested that nonprice terms were little changed across different types
of underlying asset classes (underlyings), including those for both
plain vanilla and customized derivatives.

– With respect to securities financing transactions, respondents
reported an easing of terms applicable to the funding of several types
of collateral. Dealers also noted that demand for funding for most types
of securities had increased, although to a somewhat smaller degree than
was reported in the June survey.

– Responses to special questions about funding of CMBS and
warehousing of CRE loans for securitization pointed to an easing of
conditions and renewed investor interest in these markets since the
beginning of 2010. Responses to special questions about funding of CLOs
and warehousing of bank loans for securitization suggested similar
developments with respect to these assets. Terms on warehouse funding
had reportedly eased, on net, since the beginning of 2010.

– Dealer responses to a special question regarding their overall
assessments of changes in their clients appetite to bear risk since
the beginning of the year and over the past three months were generally
mixed. However, responses from a subset including only the largest
firms, all of which engage in activities spanning the full range of
counterparty and transaction types, yield a somewhat different picture.
Of this subset, a majority reported a decrease in client risk appetite
since the start of the year and over the past three months.

** Market News International Washington Bureau: 202-371-2121 **

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