The ECB has further reviewed its risk control framework allowing for a new treatment of asset-backed securities. Without any doubt, the ECB initiative is an important signal for the markets. In detail, in the biennial review of its risk control framework applied in Eurosystem monetary policy operations, the Governing Council decided to:
- Update the haircuts for marketable instruments;
- Adjust the risk control measures for retained covered bonds to take into account the additional risk which results from the use of such securities by the issuer itself and to ensure a level playing field between securities with comparable risks;
- Replace the current requirement of two ‘triple A’ ratings with the requirement of two ‘single A’ ratings for the six classes of asset-backed securities (ABS) subject to loan level reporting requirements, reflecting their improved transparency and standardisation;
- Reduce the haircuts applicable to ABS eligible under the permanent and temporary Eurosystem collateral