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The European Central Bank (ECB) announced new easing measures regarding collateral. According to the statement, “ECB adopts an unprecedented set of collateral measures to mitigate the tightening of financial conditions across the euro area.”

Measures include a temporary increase in the Eurosystem’s risk tolerance in order to support credit to the economy, easing conditions for the use of credit claims as collateral, the introduction of a general reduction of collateral valuation haircuts, and a waiver to accept Greek sovereign debt instruments as collateral in Eurosystem credit operations. The ECB mentioned it “will assess further measures to temporarily mitigate the effect on counterparties’ collateral availability from rating downgrades”.

“The Eurosystem is increasing its risk tolerance to support the provision of credit via its refinancing operations, particularly by lowering collateral valuation haircuts for all assets consistently.” 

More from the statement: 

“First, the Governing Council decided on a set of collateral measures to facilitate an increase in bank funding against loans to corporates and households. This will be achieved by expanding the use of credit claims as collateral, in particular through the potential expansion of the additional credit claims (ACCs) frameworks. The ACC framework provides the possibility to National Central Banks to enlarge the scope of eligible credit claims for counterparties in their jurisdictions. This includes the possibility to accept loans with lower credit quality, loans to other types of debtors, not accepted in the ECB’s general framework, and foreign-currency loans.”

“Second, the Governing Council further adopted the following temporary measures:
– A lowering of the level of the non-uniform minimum size threshold for domestic credit claims to EUR 0 from EUR 25,000 previously to facilitate the mobilisation as collateral of loans from small corporate entities;
-An increase, from 2.5% to 10%, in the maximum share of unsecured debt instruments issued by any single other banking group in a credit institution’s collateral pool. This will enable counterparties to benefit from a larger share of such assets.
-A waiver of the minimum credit quality requirement for marketable debt instruments issued by the Hellenic Republic for acceptance as collateral in Eurosystem credit operations.”

“Third, the Governing Council decided to temporarily increase its risk tolerance level in credit operations through a general reduction of collateral valuation haircuts by a fixed factor of 20%. This adjustment aims to contribute to the collateral easing measures while maintaining a consistent degree of protection across collateral asset types, albeit at a temporarily lower level.”

Market reaction 

The EUR/USD pair remains off highs, holding on to strong daily gains trading around 1.0890. It was unaffected by the ECB announcement so far. The key driver on Tuesday continues to be US dollar weakness.