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ECB Revises Collateral Rules To Boost Lending


The European Central Bank tweaked its collateral rules, expanding the list of collateral accepted and reducing the haircuts applicable to asset-backed securities, in an effort to boost lending to struggling small businesses.

The measures, which ECB said, will have an overall neutral effect on the amount of collateral available, were announced by the Governing Council late Thursday in a biennial review of its risk control framework.

The ECB decided to reduce the haircut applicable to asset-backed securities, or ABS, eligible under the permanent and temporary Eurosystem collateral framework, to 10 percent from 16 percent.

The bank said it will also investigate how to improve funding conditions for Small and Medium-sized Enterprises, or SMEs. The bank is considering possible acceptance of SME-linked ABS-guaranteed mezzanine tranches as Eurosystem collateral.

"The list of collateral accepted under the permanent Eurosystem collateral framework will be expanded," the bank said in a statement. The Governing Council also decided to update the haircuts for marketable instruments.

The central bank will ease the quality requirement for six classes of ABS, which are subject to loan level reporting requirements, to two 'single A' ratings from two 'triple A' ratings.

The changes will unlock an estimated EUR 20 billion in ABS available as collateral for banks to tap ECB funds. At the same time, the central bank tightened the collateral rules for retained covered bonds, a move that will keep the overall amount of collateral available intact.

The ECB said it will "adjust the risk control measures for retained covered bonds to take into account the additional risk which results from the use of such securities by the issuer itself and to ensure a level playing field between securities with comparable risks."

Additionally, the bank said it will adjust the eligibility criteria and haircuts applied by national central banks to pools of credit claims and certain types of the additional credit claims eligible under the temporary Eurosystem collateral framework.

These measures will come into force once formalised with the relevant Eurosystem legal acts and, if required, national implementing provisions, ECB said.

by RTTNews Staff Writer

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