Featured Product

    ECB Announces Package of Temporary Collateral Easing Measures

    April 07, 2020

    The Governing Council of ECB adopted a package of temporary collateral easing measures to facilitate the availability of eligible collateral for Eurosystem counterparties to participate in liquidity providing operations, such as the targeted longer-term refinancing operations (TLTRO-III). To this end, the Governing Council decided on a set of collateral measures to facilitate an increase in bank funding and to temporarily increase its risk tolerance level in credit operations. The measures collectively support the provision of bank lending, especially by easing the conditions at which credit claims are accepted as collateral.

    In this regard, ECB has published a guideline that amends Guideline ECB/2014/31 on additional temporary measures relating to Eurosystem refinancing operations and eligibility of collateral. ECB has also published a Decision that amends EU guidelines 2015/510 and 2016/65. The emergency collateral package contains three main features. First, the Governing Council decided on a set of collateral measures to facilitate an increase in bank funding against loans to corporates and households. In this respect, the Governing Council decided to temporarily extend the additional credit claims frameworks further by:

    • Accommodating the requirements on guarantees to include government and public-sector guaranteed loans to corporates, small, and medium-sized enterprises (SMEs), and self-employed individuals and households in the additional credit claims frameworks, with the aim to provide liquidity against loans benefiting from the new guarantee schemes adopted in euro area member states as a response to the COVID-19 pandemic.
    • Enlarging the scope of acceptable credit assessment systems used in the additional credit claims frameworks, for example, by easing the acceptance of banks’ own credit assessments from internal rating-based systems that are approved by supervisors.
    • Reducing the additional credit claims loan-level reporting requirements to allow counterparties to benefit from the additional credit claims frameworks, even before the necessary reporting infrastructure is put in place.

    Second, the Governing Council decided to temporarily increase its risk tolerance level in credit operations through a general reduction of collateral valuation haircuts by a fixed factor of 20%. Third, the Governing Council adopted the following temporary measures:

    • A lowering of the level of the non-uniform minimum size threshold for domestic credit claims to EUR 0 from EUR 25,000 previously to facilitate the mobilization as collateral of loans from small corporate entities.
    • An increase, from 2.5% to 10%, in the maximum share of unsecured debt instruments issued by any single other banking group in a credit institution’s collateral pool. This will enable counterparties to benefit from a larger share of such assets.
    • A waiver of the minimum credit quality requirement for marketable debt instruments issued by the Hellenic Republic for acceptance as collateral in Eurosystem credit operations.

    In addition, as part of the regular review of its risk control framework, the Governing Council decided to adjust the haircuts applied to non-marketable assets, both in the general collateral framework and for additional credit claims, by fine-tuning some of the haircut parameters. This adjustment applies in addition to the temporary haircut reduction and thus further supports the collateral easing measures while maintaining adequate risk protection. This leads, on average, to a further haircut reduction of this type of collateral by nearly 20%. Furthermore, the Governing Council has mandated the Eurosystem committees to assess measures to temporarily mitigate the effect on counterparties’ collateral availability from rating downgrades arising from the economic impact of COVID-19, while continuing ensuring collateral adequacy.

     

    Related Links

    Keywords: Europe, EU, Banking, Securities, COVID-19, Credit Risk, TLTRO, Regulatory Haircuts, Counterparty Risk, Collateral Framework, Loan-Level Reporting Requirements

    Featured Experts
    Related Articles
    News

    EBA Guide to Monitor Threshold for Intermediate Parent Undertakings

    The European Banking Authority (EBA) published the final guidelines on the monitoring of the threshold and other procedural aspects on the establishment of intermediate parent undertakings in European Union (EU), as laid down in the Capital Requirements Directive (CRD).

    July 28, 2021 WebPage Regulatory News
    News

    PRA Finalizes Approach to Supervision of International Banks

    In a recent Market Notice, the Bank of England (BoE) confirmed that green gilts will have equivalent eligibility to existing gilts in its market operations.

    July 26, 2021 WebPage Regulatory News
    News

    FCA Issues PS21/9 on Implementation of Investment Firms Regime

    The Financial Conduct Authority (FCA) published the policy statement PS21/9 on implementation of the Investment Firms Prudential Regime.

    July 26, 2021 WebPage Regulatory News
    News

    EBA Proposes Regulatory Standards to Identify Shadow Banking Entities

    The European Banking Authority (EBA) proposed regulatory technical standards that set out criteria for identifying shadow banking entities for the purpose of reporting large exposures.

    July 26, 2021 WebPage Regulatory News
    News

    IOSCO Proposes Recommendations on ESG Ratings and Data Providers

    The Board of the International Organization of Securities Commissions (IOSCO) proposed a set of recommendations on the environmental, social, and governance (ESG) ratings and data providers.

    July 26, 2021 WebPage Regulatory News
    News

    ESMA Group Issues Recommendations on RFR Switch in Interdealer Market

    The European Securities and Markets Authority (ESMA) published recommendations from the Working Group on Euro Risk-Free Rates (RFR) on the switch to risk-free rates in the interdealer market.

    July 26, 2021 WebPage Regulatory News
    News

    EC to Defer Application of SFDR Standards Till July 2022

    The European Commission (EC) announced plans to defer the application of 13 regulatory technical standards under the Sustainable Finance Disclosure Regulation (2019/2088) by six months, from January 01, 2022 to July 01, 2022.

    July 23, 2021 WebPage Regulatory News
    News

    EIOPA Consults on Reporting and Disclosures Under Solvency II

    The European Insurance and Occupational Pensions Authority (EIOPA) proposed to amend the supervisory statement on supervision of run-off undertakings that are subject to Solvency II regulation.

    July 23, 2021 WebPage Regulatory News
    News

    BoE Consults on Approach to Setting MREL, Publishes Bail-In Guidance

    The Bank of England (BoE) published a consultation paper on approach to setting minimum requirement for own funds and eligible liabilities (MREL), an operational guide on executing bail-in, and a statement from the Deputy Governor Dave Ramsden.

    July 22, 2021 WebPage Regulatory News
    News

    EBA Seeks Views on Proportionality Assessment Methodology

    The European Banking Authority (EBA) is seeking preliminary input on standardization of the proportionality assessment methodology for credit institutions and investment firms.

    July 22, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7295