The European Central Bank notes a second consecutive quarter of slight easing in credit conditions, although volatility from the Middle East conflict raised funding costs and disputes over collateral valuations.
The European Central Bank (ECB) has published the results of the SESFOD survey for June 2026, revealing a slight net easing in credit conditions and terms for all types of counterparties for the second consecutive quarter. However, this relief was solely due to an improvement in prices, while non-price-related terms remained virtually unchanged.
The survey, conducted between March and May 2026, covered a period of high volatility in financial markets. The escalation of the conflict in the Middle East triggered a supply shock in oil that drove up commodity prices and dampened risk appetite in March. However, in April and May, markets rebounded strongly, and expectations regarding official interest rates increased significantly.
According to the ECB, despite this turbulent environment, credit conditions generally remained resilient. Respondents reported that overall terms had softened slightly for all types of counterparties, a phenomenon that has repeated for the second quarter. Looking ahead, participants expect credit conditions to remain largely unchanged between June and August 2026, with only a small net percentage anticipating a slight tightening of price terms for banks and dealers.
In the securities financing markets, funding rates and spreads increased across all types of collateral, with significant increases in asset-backed securities (a net 31% of respondents), high-yield corporate bonds, and national government bonds (a net 29% in each case). At the same time, demand for funding grew in almost all categories of collateral, especially for equity-backed financing (a net 33% of respondents), which experienced a strong recovery in collateral values.
Dealers responded by reducing the maximum amount and maturity of funding available for various types of bonds, while increasing the availability of equity-backed funding. Liquidity and the functioning of collateral markets showed a slight deterioration for equities, high-yield corporate bonds, and high-quality financial corporate bonds. At the same time, the volume of disputes over collateral valuations increased across all types of collateral, highlighting the growing challenges in market dynamics.
In the centrally cleared OTC derivatives markets, some signs of friction were also observed. Initial margin requirements increased slightly for most types of derivatives, especially for interest rate derivatives, reversing the slight decreases from the previous quarter. Liquidity and trading deteriorated slightly for currency, equity, and commodity derivatives, and the volume of disputes over valuations increased for various types of derivatives, particularly equities, while the duration and persistence of disputes barely varied. The maximum exposure amount increased slightly for interest rate, credit, and equity derivatives.
The SESFOD survey is conducted four times a year and collects qualitative information on changes in credit conditions and terms during reference periods of three months ending in February, May, August, and November. The June 2026 round gathered information on changes between March and May 2026. The results are based on responses from a panel of 26 large banks, of which 14 are from the euro area and 12 are based outside it.
For investors and market participants, this data indicates that, although volatility has raised funding costs and operational frictions, the credit system as a whole remains stable. The expectation that conditions will not change significantly in the coming months suggests that businesses and financial entities can plan their funding without fear of a sharp tightening, although they will need to monitor the evolution of spreads and disputes over collateral.
The complete results of the survey, including detailed breakdowns by counterparty type, collateral type, and derivative type, as well as comparisons with previous rounds, are available on the ECB's website.
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