ECB Reviews Risk Control Framework for Credit Operations

Measures to take effect on 29 June 2023 will be based on ECB’s pre-pandemic risk tolerance levels

ECB credit operations

ECB Reviews Risk Control Framework for Credit Operations. Image: shutterstock.com

The European Central Bank (ECB) today outlined the details of the most recent review of its risk control framework for collateralised credit operations.

This March, the ECB Governing Council decided to gradually eliminate the pandemic collateral easing measures. The bank also promised to implement a new valuation haircut schedule for credit operations based on its pre-pandemic risk tolerance levels.

With the latest policy review, the ECB decided on several measures which will take effect from 29 June 2023:

  • Increase the valuation haircuts for marketable and non-marketable assets to the pre-pandemic risk tolerance level, based on an updated risk assessment.
  • Re-assign EU bonds from haircut category II to haircut category I. This decision reflects the higher liquidity of EU bonds as a result of issuances under the NextGenerationEU and Support to mitigate Unemployment Risk in an Emergency (SURE) instruments.
  • Assign all covered bonds and multi-cédulas to haircut category II.
  • Make the haircuts for marketable assets with a floating coupon and those with a fixed coupon equal.
  • Split the longest residual maturity category in the existing haircut schedule into three parts.
  • Replace the current flat 5% theoretical valuation markdown with a maturity-graduated markdown schedule.

ECB also assured that the updated haircut schedule is sufficiently protective against climate-related financial risks.

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