Details of new ECB collateral rules begin to firm

By Staff Reporter
Reuters US Online Report Business News

Feb 10, 2012 12:44 EST

FRANKFURT (Reuters) - Euro zone central banks began to fill in some of the blanks surrounding their new, more accommodative lending rules on Friday, revealing banks will get between 90 and 11 percent of the face value of the freshly-eligible loans they can now use as collateral.

The European Central Bank sketched out plans on Thursday to give seven of the 17 euro zone national central banks more freedom over the types of traditional-style corporate and consumer loans they allow commercial banks to swap for funds in their lending operations.

Filling in some of the missing details, the Central Bank of Cyprus published a table of the penalties or 'haircuts' that will be applied euro zone-wide.

The charges range from 10 percent for euro-denominated loans with a default probability of 0.1 percent, to up to 89 percent for those with a riskier 1.5 percent chance of default and denominated in yen.

Individual central banks will have the final say on many of the other details.

Across the euro zone, however, there will be no minimum size for loans to be to be eligible and no central bank will be able to take loans with a default probability of more than 1.5 percent. In Italy's case the maximum the central bank will accept will be 1 percent.

The adjustments are part of a sweeping round of changes the ECB first announced in November to help stabilize the euro zone debt crisis by bolstering the bloc's banks.

Ireland, Spain, France, Italy, Cyprus, Portugal and Austria have all said they will loosen their rules but the decision by others not to follow suit has sparked fears that it could unbalance the system by making it easier to get cheap ECB cash in some countries than in others.

Banks are hoping that the changes come into force before the second of the ECB's two planned injections of 3-year funding on February 29. ECB President Mario Draghi said on Thursday he expects demand at the tender to be similar to the half a trillion euros banks took at the first one back at the end of December.

(Reporting by Marc Jones; Editing by Ruth Pitchford)

Source: Reuters US Online Report Business News

 

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