ECB toughens collateral rules for accessing liquidity

The European Central Bank on Thursday unveiled plans to toughen the rules on the assets banks can submit as collateral in central bank lending operations, a response to concern the facility has been open to misuse.
The bank will from February 1, 2009, increase the safety margin it takes in valuing assets, known as the haircut, to 12 percent across the board for all asset-backed securities (ABS) that banks deposit with the ECB to receive short-term funding.
Banks will also have to take an initial mark-down of 5 percent on ABS that are valued based on models, rather than on market prices. The haircut will be 5 percent on unsecured bank bonds, and the ECB will require greater disclosure, including quarterly reviews by external credit rating agencies.