The European Central Bank (ECB) announced its decision to phase out pandemic-induced temporary collateral easing measures by March 2024, along with certain decisions related to the RCB Bank phasing out its banking operations.
The collateral easing measures will be phased out in the following three steps while ECB will continue to waive minimum credit quality requirement for Greek government bonds, allowing national central banks to accept them as collateral in line with continued eligibility in pandemic emergency purchase program (PEPP):
- In Step 1 of the collateral easing measures, ECB will implement set of decisions from July 08, 2022: temporarily reduce collateral valuation haircuts across all assets from the current 20% adjustment to 10%; discontinue maintaining the eligibility of marketable assets that fulfilled minimum credit quality requirements; restore the limit with respect to unsecured debt instruments issued by any single other banking group in a credit institution’s collateral pool from 10% to 2.5%; and phase out technical requirements for the eligibility of additional credit claims, mainly relating to fully restoring the frequency of the additional credit claims loan level reporting requirements and the acceptance requirements for banks’ own credit assessments from internal rating-based systems.
- In Step 2, ECB expects to implement a new valuation haircut schedule based on its pre-pandemic risk tolerance level for credit operations, phasing out the remaining general 10% reduction in collateral valuation haircuts by June 2023.
- In Step 3, ECB plans to phase out the remaining pandemic collateral easing measures by March 2024, following a comprehensive review of the additional credit claims frameworks; the review will take into account counterparties’ collateral needs for their continued participation in the outstanding targeted longer-term refinancing operations (known as TLTRO III) operations until December 2024.
As part of the decision on RCB Bank, ECB has decided to
- grant RCB Bank permission to sell a part of its performing loan portfolio to Hellenic Bank Public Company Ltd. RCB Bank requested ECB approval after both entities agreed on the sale. According to RCB Bank’s voluntary phasing-out plan, the sales operation will ensure it has enough liquidity to repay its clients’ deposits in full.
- restrict the bank’s business to avoid risks emerging during the bank’s phasing-out process. Therefore, RCB Bank will not be able to accept new deposits, grant new loans, or make new investments.
- appoint a temporary administrator to closely monitor RCB Bank’s liquidity position and capital position and to oversee the orderly repayment of its depositors. The temporary administrator will not replace the current management body, but instead work with it and support the orderly implementation of the bank’s voluntary phasing-out plan.
Keywords: Europe, EU, Banking, Covid-19, Basel, Credit Risk, PEPP, TLTRO III, RCB Bank, Liquidity Risk, Collateral Framework, Counterparty Risk, Resolution Framework, ECB
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