ECB to tighten banks’ access to loans after pandemic-era largesse

The European Central Bank (ECB) headquarters building is seen at sunset in Frankfurt, Germany, January 5, 2022. REUTERS/Kai Pfaffenbach

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FRANKFURT, March 24 (Reuters) – The European Central Bank will tighten banks’ access to liquidity from July by phasing out exceptionally easy collateral rules introduced at the start of the coronavirus pandemic, the ECB said on Thursday.

This decision marks another step towards the end of the extraordinary support measures deployed by the bank to cushion the economic impact of COVID-19. The ECB has already ended a massive money printing program and opened the door to its first interest rate hike in a decade. Read more

However, in a sign of continued support for weaker eurozone members, the ECB will continue to let banks post Greek government bonds as collateral despite their junk credit rating and said it reserves the right to do it when it suits him.

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Under this decision, the ECB will phase out measures that made it easier for banks to borrow from the central bank, including during times of high market stress in the spring of 2020, by mobilizing additional collateral of a worth 240 billion.

It will begin in July by no longer accepting “fallen angels,” or bonds that lost their investment-grade rating during the pandemic, and by increasing certain “haircuts,” or valuation haircuts, on loans that banks deposit as collateral.

The process will end in December 2024 when the last installment of the ECB’s last multi-year loans, another element of its pandemic response, will be repaid.

“This phasing out gives sufficient time for Eurosystem counterparties to adapt,” the ECB said in a statement.

The ECB also reaffirmed a waiver on Greek government bonds as long as it continues to invest proceeds from its Pandemic Emergency Purchase Program (PEPP).

In a sign of hope for other countries with lower credit ratings, such as Cyprus, Portugal or Italy, the ECB added that it could again ignore agency ratings in the future.

“The Governing Council of the ECB reserves the right to deviate also in the future from the ratings of credit rating agencies if justified,” the ECB said.

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Reporting by Francesco Canepa; Editing by Balazs Koranyi and Hugh Lawson

Our standards: The Thomson Reuters Trust Principles.

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