ECB sets out fresh rules for collateral as rates held

THE European Central Bank (ECB) yesterday set out its new lending rules governing what assets banks can swap for ECB loans as it voted to keep interest rates on hold.

From 2011, the central bank will apply graduated valuation haircuts for lower-rated assets in the BBB+ to BBB- range and will replace the uniform haircut add-on of five per cent that is currently applied to these assets.

The text of the agreement makes clear that if Greek sovereign debt was downgraded further, it would continue to be eligible at the ECB.

Societe Generale chief economist James Nixon said: “This represents a significantly smaller tightening in the ECB collateral requirements than was originally envisaged and potentially has been done to directly aid Greece.” The ECB continued to forecast recovery at a moderate pace with high levels of uncertainty and uneven expansion.