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ECB toughens collateral rules for accessing liquidity

Thu, Sep 4 2008, 14:29 GMT
http://www.afxnews.com

FRANKFURT, Sept 4 (Reuters) - The European Central Bank on Thursday unveiled plans to toughen the rules on the assets banks can submit as collateral in central bank lending operations, a response to concern the facility has been open to misuse.

The bank will from Feb. 1, 2009, increase the safety margin it takes in valuing assets, known as the haircut, to 12 percent across the board for all asset-backed securities (ABS) that banks deposit with the ECB to receive short-term funding.

Banks will also have to take an initial markdown of 5 percent on ABS that are valued based on models, rather than on market prices.

The haircut will be 5 percent on unsecured bank bonds, and the ECB will require greater disclosure, including quarterly reviews by external credit rating agencies.

"They (the changes) were designed to refine particular elements of our risk control framework: we wanted to be sure that the euro system remains adequately protected," ECB President Jean-Claude Trichet told a news conference.

Investors say the ECB has allowed banks and mortgage markets, particularly in Spain, to put off adjusting to tougher conditions after the credit crisis.

For link to text on ECB's website, click on:

http://www.ecb.int/press/pr/date/2008/html/pr080904_2.en.html

(Reporting by Krista Hughes, writing by Jane Baird, editing by Swaha Pattanaik) Keywords: ECB/COLLATERAL

tf.TFN-Europe_newsdesk@thomson.com

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