Featured Product

    ECB Aims to Ease Impact of Rating Downgrade on Collateral Availability

    April 22, 2020

    The Governing Council of ECB adopted temporary measures to mitigate the effect, on collateral availability, of possible rating downgrades resulting from the economic fallout from COVID-19 pandemic. The decision complements the broader collateral easing package that was announced on April 07, 2020. ECB decided to grandfather, until September 2021, the eligibility of marketable assets (and the issuers of such assets) that fulfilled minimum credit quality requirements in the event of a deterioration in credit ratings decided by the credit rating agencies accepted in the Eurosystem as long as the ratings remain above a certain credit quality level. Non-marketable assets are not part of the scope of the temporary grandfathering.

    The Governing Council aims to avoid potential procyclical dynamics. This would ensure continued collateral availability, which is crucial for banks to provide funding to firms and households during the current challenging times. The following decisions have been taken:

    • Marketable assets and issuers of these assets that met the minimum credit quality requirements for collateral eligibility on April 07, 2020 (BBB- for all assets, except asset-backed securities) will continue to be eligible in case of rating downgrades, as long as their rating remains at or above credit quality step 5 (equivalent to a rating of BB) on the Eurosystem harmonized rating scale. This ensures that assets and issuers that were investment grade at the time the Governing Council adopted the package of collateral easing measures remain eligible even if their rating falls two notches below the current minimum credit quality requirement of the Eurosystem.
    • To be grandfathered, the assets need to continue to fulfill all other existing collateral eligibility criteria.
    • Future issuance from grandfathered issuers will be eligible provided they fulfill all other collateral eligibility criteria.
    • Currently eligible covered bond programs will also be grandfathered, under the same conditions.
    • Currently eligible asset-backed securities to which a rating threshold in the general framework of credit quality step 2 applies (equivalent to a rating of A-) will be grandfathered as long as their rating remains at or above credit quality step 4 (equivalent to a rating of BB+).
    • Assets that fall below the minimum credit quality requirements will be subject to haircuts based on their actual ratings.

    All measures will enter into effect as soon as the relevant legal acts enter into force. The measures will apply until September 2021 when the first early repayment of the third series of targeted longer-term refinancing operations (TLTRO-III) takes place. The same end date will apply to the collateral easing measures announced on April 07, 2020.

     

    Related Links

    Keywords: Europe, EU, Banking, COVID-19, Collateral, Credit Ratings, Procyclicality, Credit Rating Agencies, Credit Risk, TLTRO III, ECB

    Featured Experts
    Related Articles
    News

    EBA Clarifies Use of COVID-19-Impacted Data for IRB Credit Risk Models

    The European Banking Authority (EBA) published four draft principles to support supervisory efforts in assessing the representativeness of COVID-19-impacted data for banks using the internal ratings based (IRB) credit risk models.

    June 21, 2022 WebPage Regulatory News
    News

    EP Reaches Agreement on Corporate Sustainability Reporting Directive

    The European Council and the European Parliament (EP) reached a provisional political agreement on the Corporate Sustainability Reporting Directive (CSRD).

    June 21, 2022 WebPage Regulatory News
    News

    PRA Consults on Model Risk Management Principles for Banks

    The Prudential Regulation Authority (PRA) launched a consultation (CP6/22) that sets out proposal for a new Supervisory Statement on expectations for management of model risk by banks.

    June 21, 2022 WebPage Regulatory News
    News

    EC Regulation Amends Standards for Calculating Credit Risk Adjustments

    The European Commission (EC) published the Delegated Regulation 2022/954, which amends regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.

    June 21, 2022 WebPage Regulatory News
    News

    BIS Hub Updates Work Program for 2022, Announces New Projects

    The Bank for International Settlements (BIS) Innovation Hub updated its work program, announcing a set of projects across various centers.

    June 17, 2022 WebPage Regulatory News
    News

    EIOPA Issues Cyber Underwriting Proposal, Statement on Open Insurance

    The European Insurance and Occupational Pensions Authority (EIOPA) published two consultation papers—one on the supervisory statement on exclusions related to systemic events and the other on the supervisory statement on the management of non-affirmative cyber exposures.

    June 17, 2022 WebPage Regulatory News
    News

    US Senate Members Seek Details on SEC Proposed Climate Disclosure Rule

    Certain members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs issued a letter to the Securities and Exchange Commission (SEC)

    June 16, 2022 WebPage Regulatory News
    News

    EIOPA Consults on Review of Securitization Framework in Solvency II

    The European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on the advice on the review of the securitization prudential framework in Solvency II.

    June 16, 2022 WebPage Regulatory News
    News

    BIS Bulletins Discuss DeFi Lending and Aspects of Crypto-Assets

    The Bank for International Settlements (BIS) published bulletins on lending in decentralized finance (DeFi) system, on blockchain scalability and fragmentation of crypto, and on extractable value and market manipulation in crypto and decentralized finance.

    June 16, 2022 WebPage Regulatory News
    News

    UK Authorities Issue Regulatory and Reporting Updates for Banks

    The Prudential Regulation Authority (PRA) issued a statement on PRA buffer adjustment while the Bank of England (BoE) published a notice on the statistical reporting requirements for banks.

    June 15, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8292