ECB Officially Announces Easing Of Collateral Rules, Confirms Europe Has Run Out Of Assets
The headline which paradoxically ramped stocks yesterday, is back:
- ECB DECIDED ON ADDL MEASURES TO IMPROVE BANKING SECTOR ACCESS
- ECB DECIDE TO REDUCE RATING THRESHOLD FOR SOME ABS
- ECB SAYS AUTO-LOAN ABS WILL BE ELIGIBLE
- ECB SAYS IT WILL APPLY 16% HAIRCUT TO A RATED ABS COLLATERAL
- ECB TO BROADEN SCOPE OF MEASURES INTRODUCED DEC. 8, 2011
- ECB SAYS BBB-RATED RMBS FACE 26% HAIRCUT
- ECB SAYS RMBS OF AT LEAST BBB MAY BE ELIGIBLE
- ECB SAYS BBB-RATED CMBS FACE 32% HAIRCUT
Why paradoxically? Because once again Europe confirms it has run out of actual money-good assets that can be pledged. Going forward, every repo transaction will merely be a dilutive one: those deposits you have with bank XYZ? Why, they are backed by the kitchen sink. Literally.
As for the rating of the actual collateral? Why that will come from the ECB itself of course.
Goodbye European Central Bank. Hello Salvation Army Bank.
or in other words:
"THE ECB RATES THIS SPIDERMAN TOWEL-BACKED CURRENCY AAA+++
Meet Europe's new currency:
Full text from the bank which will now outbid anyone for anything on Ebay
Further Measures To Lift Collateral Availability
The European Central Bank on Friday announced further measures to increase collateral availability for counterparties. Following is the text of the ECB's press release:
On 20 June 2012 the Governing Council of the European Central Bank (ECB) decided on additional measures to improve the access of the banking sector to Eurosystem operations in order to further support the provision of credit to households and non-financial corporations.
The Governing Council has reduced the rating threshold and amended the eligibility requirements for certain asset-backed securities (ABSs). It has thus broadened the scope of the measures to increase collateral availability which were introduced on 8 December 2011 and which remain applicable. In addition to the ABSs that are already eligible for use as collateral in Eurosystem operations, the Eurosystem will consider the following ABSs as eligible:
1. Auto loan, leasing and consumer finance ABSs and ABSs backed by commercial mortgages (CMBSs) which have a second-best rating of at least "single A"1 in the Eurosystem's harmonised credit scale, at issuance and at all times subsequently. These ABSs will be subject to a valuation haircut of 16%.
2. Residential mortgage-backed securities (RMBSs), securities backed by loans to small- and medium-sized enterprises (SMEs), auto loan, leasing and consumer finance ABSs and CMBSs which have a second-best rating of at least "triple B"2 in the Eurosystem's harmonised credit scale, at issuance and at all times subsequently. RMBSs, securities backed by loans to SMEs, and auto loan, leasing and consumer finance ABSs would be subject to a valuation haircut of 26%, while CMBSs would be subject to a valuation haircut of 32%.
The risk control framework with higher haircuts applicable to the newly eligible ABS aims at ensuring risk equalisation across asset classes and maintaining the risk profile of the Eurosystem.
The newly eligible ABSs must also satisfy additional requirements which will be specified in the legal act to be adopted Thursday, 28 June
2012. The measures will take effect as soon as the relevant legal act enters into force.