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The ECB said it is taking steps to mitigate the impact of possible ratings downgrades on collateral availability and will grandfather until September 2021 eligibility of marketable assets in euro system credit operations. The market has been jittery about the Italian credit situation.

BankofECB

The European Central Bank announces looser credit acceptance through september 2021

The ECB issued the statement Wednesday afternoon largely seen as a respsone to the worsening credit situations in Italy, Spain and France with credit operations falling below current minimum credit quality requirements

Highlights

  • Taking steps to mitigate the impact of possible ratings downgrades on collateral availability
  • ECB to grandfather until September 2021 eligibility of marketable assets used as collateral in euro system credit operations falling below current minimum credit quality requirements
  • ECB may decide further measures if needed to continue ensuring the smooth transmission of its monetary policy in all jurisdictions of the euro area appropriate haircuts will apply for assets that fall below the euro systems minimum credit quality requirements
  • ECB to accept some junk rated debt as collateral for bank loans

NB LTRO (Targeted Longer-Term Refinancing Operations) is best described as a long term loan to banks to increase loan creation. The banks lend above a specified benchmark and borrow from the ECB at a negative rate. This will provide an incentive for the banks to lend and thus increase private spending in the economy. That's the theory clearly has not been a great success so far.

Live. https://www.ecb.europa.eu/home/html/index.en.html

Source: Euopean Central Bank

From The TradersCommunity NewsDesk

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