ECB announces timetable for phasing out temporary pandemic safeguards easing measures

March 24, 2022

  • Pandemic safeguards relaxation measures introduced in April 2020 will be phased out in three stages between July 2022 and March 2024
  • Phasing out the measures will gradually restore the Eurosystem’s risk tolerance before the pandemic and avoid cliff-edge effects on the availability of collateral
  • The ECB will continue to waive the minimum credit quality requirement for GGBs, allowing NCBs to accept them as collateral in line with continued PEPP eligibility

The Governing Council of the European Central Bank (ECB) has decided to phase out the pandemic safeguards relaxation package in place since April 2020. The Governing Council has prospectively taken into account the impact of this phasing out on the availability of collateral from Eurosystem counterparties, in particular with regard to their ability to continue to raise collateral until maturity of the outstanding targeted longer-term refinancing operations (TLTRO III). In addition, it took into account the risk impact of each of these measures. This phasing out gives sufficient time for Eurosystem counterparties to adapt and should take place in three stages.

Step 1 From July 8, 2022, the ECB will implement a set of decisions. First, it will halve the temporary reduction in collateral valuation haircuts on all assets, from the current 20% adjustment to 10%. Second, the ECB will no longer maintain the eligibility of marketable assets which met the minimum credit quality requirements on 7 April 2020 but whose credit ratings subsequently deteriorated below the minimum rating threshold. Third, the ECB will restore the limit on unsecured debt securities issued by any other banking group in a credit institution’s collateral pool from 10% to 2.5%, as it was before April 2020. Fourth, the ECB will phase out the temporary relaxation of certain technical requirements for the eligibility of Additional Credit Claims (ACC), mainly related to the full restoration of the frequency of ACC loan-level reporting requirements and own acceptance requirements. bank credit assessments from internal rating-based systems. The relevant national central banks will communicate the details to the relevant counterparties.

2nd step In June 2023, the ECB plans to implement a new valuation haircut schedule based on its pre-pandemic risk tolerance level for credit transactions, phasing out the remaining 10% general reduction in valuation haircuts guarantees. Details of the new haircut schedule will be announced in due course and will take into account the results of the next regular review of the ECB’s risk control framework.

Step 3 In March 2024, the ECB will in principle remove the remaining pandemic collateral relaxation measures, following a comprehensive review of ACC frameworks that will take into account the collateral needs of counterparties for their continued participation in TLTROs. III in progress until December 2024. These measures include the acceptance of various ACCs introduced during the pandemic period, such as loans guaranteed by the government and certain public sector entities.

Notwithstanding this, national central banks may decide to terminate (parts of) their ACC framework early.

The Governing Council has decided to continue to allow NCBs to accept as eligible collateral Greek government bonds (GGBs) that do not meet the Eurosystem’s minimum credit quality requirements but meet all other applicable eligibility criteria, at least as long as reinvestments in GGBs under the Pandemic Emergency Purchase Program (PEPP) continue.[1]

The Governing Council of the ECB reserves the right to deviate also in the future from the ratings of the credit rating agencies if this is justified, in accordance with its discretion in the context of monetary policy, thus avoiding a dependency mechanics to these notations.

The Governing Council of the ECB adopted the underlying package of temporary collateral easing measures in April 2020 as part of its policy response to the pandemicto facilitate the availability of eligible collateral for Eurosystem counterparties and to mitigate the effect on the availability of collateral of possible rating downgrades resulting from the economic fallout from the coronavirus (COVID-19) pandemic.

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