FRANKFURT Oct 5 The European Central Bank will
continue to accept unsecured bank bonds as collateral for
lending, including some that may be written down if a bank
fails, but it is restricting their use and increasing checks, it
said on Wednesday.
The move comes in response to new European rules stating
that investors in a bank, including holders of bonds that are
not backed by collateral, must suffer losses in case of default
before public money can be used.
The decision ensures that banks' senior unsecured debt
subject to "statutory subordination", where national rules say
it should be written down before other senior debt in a bail-in,
can still be used by banks and investment firms to borrow money
from the ECB.
"The ECB has decided to maintain the eligibility of UBBs for
the time being, including the eligibility of statutorily
subordinated UBBs that are not also contractually subordinated,
which under the current rules would have become ineligible as at
1 January 2017," it said in a statement.
The central bank will, however, tighten the use of such debt
as collateral and increase risk checks before granting
"The ECB has decided to reduce, as of 1 January 2017, the
usage limit for uncovered bank bonds from 5 percent to 2.5
percent," it added.
The new limit will not apply to assets that are worth less
than 50 million euros ($56.10 million) after haircuts are
applied, or to assets guaranteed by public sector entities that
can levy taxes.
The ECB will review the guidelines next year, noting work is
ongoing towards a common EU approach to the matter.
($1 = 0.8913 euros)
(Reporting By Francesco Canepa Editing by Jeremy Gaunt)