Saturday 24 March 2018

ECB adds 5pc haircut on Greek debt after downgrade

Jana Randow and Christian Vits

The European Central Bank said it will charge an additional 5pc premium on the Greek government bonds it accepts as collateral for loans after Moody’s Investors Service cut the country’s credit rating to non-investment grade.

A spokesman for the Frankfurt-based central bank said the so-called haircut will be applied to Greek securities after Moody’s yesterday downgraded Greek debt to Ba1 from A3.

The ECB eased the standards for collateral it accepts in its refinancing operations after Lehman Brothers’ bankruptcy in 2008.

The minimum rating on bonds accepted in market operations was cut to BBB- from A-.

However, the ECB imposed an additional 5pc risk premium, or haircut, on securities rated below A-, equivalent to A3 at Moody’s.

While the ECB this year agreed to accept all Greek sovereign debt as collateral, the spokesman said the haircut rule will still be applied.

The change will make it more expensive for banks to borrow from the ECB using Greek debt as collateral.

A 5pc haircut on an asset means the central bank would lend commercial banks 95pc of its value.


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