THE EUROPEAN Central Bank is discussing a medium-term plan to scrap rating rules on Eurozone sovereign bonds and instead set their value when used as collateral in lending operations on its own internal assessment, central bank sources said yesterday.
The discussions come as Spain braces for a downgrade from small rating firm DBRS, which without a change in ECB rules will trigger an extra five per cent penalty on Spanish bonds when used to get ultra-cheap ECB funding.
ECB members have heavily criticized the actions of rating agencies during the Eurozone crisis and have vowed to reduce reliance on their assessments.
“In the case that the ECB Governing Council decides this, it would reduce the widely criticized influence of Standard and Poor’s, Moody’s and Fitch,” said one central bank source, speaking on the condition of anonymity.
“On the other hand, this could also expand the shrinking pool of collateral which banks in troubled countries have available.”
The decision on more immediate changes to help squeezed Spanish banks, such as expanding the range of debt backed securities accepted as collateral, remains wide open, said another central banker.
City A.M. Reporter