Overview

As expected, the European Central Bank (ECB) has published its revised collateral haircut schedule. The revised schedule will take effect from 1 January 2011.

In keeping with previous statements, the schedule provides for the application of significantly higher haircuts in respect of (non-ABS) securities rated BBB+ to BBB- and makes certain other changes to the current haircut framework. Given the continuing importance of the ECB's operations to market liquidity, the revised haircut schedule is likely to be of interest to a wide range of market participants.
New haircut schedule for assets rated BBB+ to BBB-

By way of background, in late 2008, the ECB relaxed its minimum required rating level of A- to BBB- for all debt instruments (other than ABS, which is subject to separate rating requirements). While the adjustment was made on a temporary basis and was originally scheduled to fall away at the end of 2009, it was extended due to continuing market instability. In April 2010, as part of its then evolving response to rising concerns related to sovereign credit stress and the corresponding impact on EU banks, the ECB announced that the measure would remain in place "beyond the end of 2010", subject to the adoption of a revised graded haircut schedule to provide for more developed risk mitigation.

To read this article in full click ‘View Briefing’