The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site.

All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.

German: Grim repo

German repo-traders are besieging the Bundesbank with complaints that its minimum-reserve requirement is killing their business. But, asks Laura Covill, will things get any better if the Bundesbank relents?

"It's starving us out." "It's squeezing us dry." "It just doesn't understand our problems." This is what you'll hear if you ask the average German repo-trader what he thinks of the central bank. Next will come the wistful remark: "This market could easily be three times as big."

What so incenses these traders is the Bundesbank's insistence that repos be subject to the same minimum-reserve requirements as sight demand deposits.

In any country, a repo involves an agreement to sell securities immediately and repurchase them later. The party originally holding the securities pays a return to the counterparty to compensate for what is, in effect, a cash loan. In Germany, however, it must also lodge 2% of that loan with the Bundesbank free of interest. According to Michael Braumöller, head of treasury at Salomon Brothers in Frankfurt, this 2% rule is enough to drive business away from Germany. "The minimum reserve creates a cost of 8 basis points [bp]. When I have to forego 8bp, many trades can easily turn into loss-making deals."

About 50 banks claim to engage in Deutschmark repo business, but the leading banks say only about 10 to 15 are genuine
players, and they are doing more and more of their business in London.






You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree