Eurozone repo market shrinks in second half Cash hoarding by lenders and increased reliance on central bank funding caused the eurozone's "repo" market, where banks can access short-term funding, to shrink by nearly a tenth in the second half of last year. The size of the market for "repurchase," or repo, contracts declined by 8.2 per cent to €5.4tn compared with the first six months of the year, according to the twice-yearly survey published by the London-based International Capital Market Association. The contraction indicates that banks and other lenders were less keen to lend to borrowers such as companies and other banks in the run-up to the new year. "The contraction of the market would seem to be the result of the usual shrinkage of repo books at year-end plus the impact of the unlimited liquidity offered by the European Central Bank in December," said Richard Comotto, senior visiting fellow at the ICMA Centre at Reading University and author of the report. It's still a sign of a weak market in so far as lenders feel they have to be cautious and borrowers that their liquidity provisions are prudent, Repo markets are an important source of short-term secured funding in the financial system and regarded as a bellwether of its health. The market proved volatile during the global financial crisis - but the repo industry argues that was a consequence, not a cause of global financial market tensions. The contraction contrasts with an 8 per cent increase in the size of the repo market in the first half of last year, then bolstering confidence in a eurozone economic recovery. Mr Comotto said, however, that the repo market was continuing its longer-term trend upward since its nadir of €4.6tn during the financial crisis at the end of 2008. "The market is definitely resuscitating over the longer-term," he said. The repo market decline coincided with a jump in the eurozone's excess liquidity last month by over €100bn according to figures by Barclays, as banks took advantage of cheap and plentiful ECB finance. Banks eventually paid back large amounts of ECB loans at the end of December ahead of an asset review this year. The ECB provided more than €1tn in three-year liquidity to eurozone banks in late 2011 and early 2012 but since January banks have made €450bn in early repayments. Since the new year a draining of excess liquidity from the eurozone has led to a spike in short-term money market interest rates.