ECB tightens collateral to ensure ‘high’ standards
Jean-Claude Trichet, president of the ECB, speaks at the 19th Frankfurt European Banking Congress. Photo: Bloomberg News
Friday November 20 2009
The European Central Bank (ECB) tightened the rules for the collateral it accepts for loans as it tries to restore the "proper functioning" of markets and prepares the ground to unwind emergency liquidity measures next year.
The bank “will require at least two ratings from an accepted external credit assessment institution for all” asset- backed securities issued from March 1, 2010, the central bank said today in an emailed statement. In January, the ECB said it required a rating from one credit assessor.
“It’s a small measure but it’s going in the right direction,” said Juergen Michels, chief euro-area economist at Citigroup in London. “The ECB is just going to be less generous from now on.”
President Jean-Claude Trichet today reiterated the bank will gradually withdraw the emergency cash it has pumped into the economy in order to ensure it doesn’t fuel inflation.
He has indicated the ECB won’t renew its 12-month auctions of unlimited cash, one of its flagship policies in the crisis, after a third tranche is handed out next month.
The ECB wants “to ensure that the Eurosystem’s requirement of high credit standards for all eligible collateral is met,” the statement said.
“In addition, the changes, which reflect recent market developments, aim to make a further contribution to restoring the proper functioning of the ABS market.”
When determining the eligibility of collateral, the ECB said both the “best” and the “second-best” available ratings must comply with the “minimum threshold applicable to asset- backed securities.”
As of March 2011, the so-called second-best rule and the requirements to have at least two ratings will be applied to all asset-backed securities, regardless of their date of issue, the bank said.
- Gabi Thesing
© Bloomberg
