FRANKFURT – The European Central Bank will tighten banks’ access to its liquidity from July by phasing out exceptionally easy collateral rules introduced at the onset of the coronavirus pandemic, the ECB said on Thursday.
The move marks another step towards ending the extraordinary support measures the bank deployed to cushion the economic impact of COVID-19. The ECB has already wound down a massive money-printing scheme and opened the door to its first interest rate hike in a decade.
In a sign of continued support for the euro zone’s weakest members, however, the ECB will continue to let banks post Greek government bonds as collateral despite their junk-credit rating and said it reserved the right to do so whenever it sees fit.
Under the decision, the ECB will gradually remove measures that have allowed banks borrow more easily from the central bank, including at a time of high market stress in the spring of 2020, by mobilising additional collateral worth 240 billion.
It will start in July by no longer accepting “fallen angels”, or bonds that have lost their investment-grade rating during the pandemic, and increasing certain “haircuts”, or valuation discounts, on the loans that banks post as collateral.
The process will end in December 2024 when the last tranche of the ECB’s latest multi-year loans, another plank of its pandemic-response, is repaid.
“This gradual phasing out allows ample time for the Eurosystem’s counterparties to adapt,” the ECB said in a statement.
The ECB also reaffirmed a waiver on Greek government bonds for as long as it keeps investing the proceeds from its Pandemic Emergency Purchase Programme (PEPP).
In a hopeful sign for other countries with lower credit ratings, such as Cyprus, Portugal or Italy, the ECB added that it may disregard agencies’ ratings again in the future.
“The ECB’s Governing Council reserves the right to deviate also in the future from credit rating agencies’ ratings if warranted,” the ECB said.
(Reporting by Francesco Canepa; Editing by Balazs Koranyi and Hugh Lawson)
