ECB paper estimates regulation favours secured bank funding

An ECB Occasional Paper by Emmanuel Faïk and Olivier Vergote examines how Basel III capital, liquidity and leverage requirements affect short-term euro-area interbank transactions. Its stylised estimates put the regulatory cost of unsecured interbank lending in the second half of 2025 at about 35 basis points for lenders and 15 basis points for borrowers; secured transactions such as repos backed by high-quality collateral were typically below 10 basis points.

The authors say these differences create incentives to use secured rather than unsecured intermediation and that repo markets are likely to remain an important route for reallocating reserves as central bank reserves decline. They caution that the calculations are estimates rather than bank-specific measures, and the paper states that its views are the authors’ own, not necessarily those of the ECB.