ECB finalized a guideline (ECB/2020/29) on additional temporary measures for the Eurosystem refinancing operations and eligibility of collateral. The guideline ECB/2020/29 amends the guideline ECB/2014/31. The new guideline shall take effect on the day of its notification to the national central banks and shall remain in effect until September 29, 2021.
The Governing Council of ECB adopted collateral easing measures on April 07, 2020. Further to these measures, on April 22, 2020, the Governing Council adopted a complementary set of decisions in response to the COVID-19 pandemic. Together with the measures adopted on April 07, 2020, these new measures aim to ensure that Eurosystem counterparties remain able to maintain and mobilize sufficient collateral to be able to participate in the Eurosystem liquidity-providing operations. Accordingly, participation in these operations with this collateral should be based on temporarily amended collateral eligibility criteria and risk control measures.
As per the decision, the Governing Council considers that the Eurosystem should temporarily continue to admit as collateral, the marketable assets and the issuers of these assets that fulfilled minimum credit quality requirements on April 07, 2020, notwithstanding a deterioration in the credit ratings decided by the credit rating agencies accepted in the Eurosystem, as long as the ratings remain above a certain quality level. The Governing Council also considers that this should not affect the eligibility criteria for outright purchases under the ECB asset purchase programs. The Governing Council considers that the additional temporary measures set out in the guideline should apply until the first early repayment date under the third program of targeted longer-term refinancing operations (TLTRO-III). Therefore, Guideline ECB/2014/31 has been amended as follows:
- Article 8b on admission of certain marketable assets and issuers eligible on April 07, 2020 has been inserted
- Annexes IIa and IIb have been replaced. Annex IIa of the guideline (ECB/2020/29) contains valuation haircut levels (in %) applied to asset-backed securities (ABS) eligible under Article 3(2) and Article 8b of the guideline (ECB/2020/29). Annex IIb of the guideline (ECB/2020/29) contains valuation haircut levels (in %) applied to marketable assets, other than ABS, referred to in Articles 8a and 8b.
When determining compliance for the period between April 07, 2020 and May 18, 2020, with the credit quality requirements applicable to the assets, issuers, and guarantors referred to in Article 8b(2) to (8) of Guideline ECB/2014/31, the national central banks shall refer to the reference data relevant to those assets, issuers, and guarantors on April 07, 2020, as provided by ECB.
Related Link: ECB Guideline (PDF)
Keywords: Europe, EU, Banking, Securities, COVID-19, Credit Risk, TLTRO III, Collateral, Credit Ratings, Procyclicality, Credit Rating Agencies, Asset Backed Securities, ECB
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