Regulatory costs favour repos over unsecured interbank lending
Unsecured interbank lending carries regulatory costs of around 35 basis points, versus 2.8-6.4 basis points for secured lending, Emmanuel Faïk and Olivier Vergote find in a European Central Bank (ECB) paper published October 19, 2026.
Collateral changes the calculation
Faïk and Vergote estimate that unsecured lenders need about 34 basis points to cover capital and stable funding costs; the paper rounds this to around 35. Secured lenders face 2.8-6.4 basis points, while borrowers in either segment face leverage-related costs of about 15.2 basis points before netting.
The stylised calibration uses first-half 2026 funding spreads and second-quarter 2026 supervisory ratios.
It assumes banks preserve existing regulatory ratios by issuing capital or eligible liabilities.
Unsecured loans attract a 20 percent risk weight and a 10 percent required stable funding factor.
High-quality repo collateral substantially reduces credit exposures, favouring secured reserve redistribution as the ECB's balance sheet contracts.
The refinancing alternative limits unsecured trading
Main refinancing operations cost 15 basis points above the deposit facility rate, below the estimated unsecured lending premium.
The authors therefore see limited scope for an unsecured market revival.
German savings and cooperative banks benefit from institutional protection scheme exemptions.
The euro short-term rate trades around 6-10 basis points below the deposit rate, partly reflecting regulatory costs.
Repos offer lower-cost redistribution, but smaller banks face infrastructure, documentation and participation barriers.
Access matters as reserves decline
The authors identify repo access, not an unsecured market revival, as central to reserve redistribution.
Their estimates are benchmarks rather than spread forecasts: buffers, cross-selling and internal risk limits affect pricing.
The findings do not necessarily reflect ECB views.