have not been 2 / 5 bis central bankers'speeches finalised, euro area banks are required to report leverage ratios. given the higher relative penalty given to holding sovereign bonds under the leverage ratio as opposed to the capital ratio, it is expected to increase the cost of banks ’ repo, and reduce incentives for money market arbitrage and market making. 2 reduced incentives for arbitrage and market making in turn affect market liquidity and can lead to greater periods of uncertainty. furthermore, since european banks are required to report average month - end positions, there are increasing signs of market stress at month - end dates. the leverage ratio contains provisions for netting of offsetting cash positions when they are with the same counterparty and settled through the same system. this has resulted in a much greater use of central counterparties ( ccps ). the use of ccps has been strongly supported by authorities and brings benefits in terms of smooth market functioning, as well as for individual institutions. eurosystem contacts report a wide difference in the pricing of trades cleared bilaterally and those cleared through ccps – sometimes in the tens of basis points. ccps, however, are also important for repo markets for a different reason. the increased volume of derivative trades centrally cleared at ccps due to new regulations such as emir, as well as sporadic bouts of volatility, means that those institutions tend to hold significant quantities of cash. placing that cash as unsecured deposits would represent wrong - way risk for ccps as the collapse of a significant financial institution would create significant market volatility at the same time as potentially the loss of some of the unsecured deposits. ccps are therefore increasingly large participants in the repo markets. the requirements for trades to be centrally cleared are still being introduced, so the demand from market infrastructure to exchange cash for collateral will rise. the rise in importance of ccps is indicative of the generally increasing role played by non - bank financial institutions in recent years. since these institutions do not hold accounts at the central bank, they are unable to access the deposit facility. the demand from these non - banks to find a secure place to deposit cash is a contributory factor to repo rates trading below the eurosystem ’ s deposit facility rate ( dfr ). last but not least, changes in the interbank lending market have led to increased collateral demand. in the period since the onset of the crisis, loan losses and weak profitability have constrained the availability of

##cured lending. 4 / 5 bis central bankers'speeches conclusion let me conclude. banks and other market participants report a decrease in market making activities and collateral scarcity in repo - markets. the perception of a challenging environment can therefore not be denied. pro - cyclical market reactions during and after the financial crisis and – related – changes in banking regulation clearly had an impact on the functioning of the repo markets. but with the continued economic recovery market stress should fade and conditions for unsecured lending might re - gain some attractiveness. likewise, market players will adjust their business models over time amid a new regulatory environment. regarding the ecb ’ s asset purchase program, two important points have to be made : 1. although the app might have some negative side effects on the functioning of the repo market as compared to the pre - crisis levels, other more potent factors were at work. to reduce spill - over effects the ecb has also introduced several mitigation measures. 2. even more important : the ecb has one mandate, which is to ensure price stability. elevated risks to its goal have made unconventional measures necessary on an unpreceded scale and on a temporary basis. and they prove successful. although we try to minimise negative side effects, any of these considerations are without prejudice to the obligation to honour our mandate. 3. 1 rates based on repofunds germany, france, italy and spain. 2 cgfs ( 2015 ), ‘ regulatory change and monetary policy ’, cgfs papers no. 54, committee on the global financial system, bank for international settlements. 3 icma ( 2017 ), regulatory policy newsletter, january. 5 / 5 bis central bankers'speeches