Guideline (EU) 2023/831 of the European Central Bank of 16 December 2022 amending Guideline (EU) 2015/510 on the implementation of the Eurosystem monetary policy framework (ECB/2022/48)
Date: 2022-12-16
Institutions: European Central Bank
Subjects: Eurosystem, bond, credit institution, credit policy, financial risk, financial supervision, financial transaction, monetary policy, participating country (euro area), single monetary policy




L_2023104EN.01003201.xml










19.4.2023   


EN


Official Journal of the European Union


L 104/32








            GUIDELINE (EU) 2023/831 OF THE EUROPEAN CENTRAL BANK
         
of 16 December 2022
         
amending Guideline (EU) 2015/510 on the implementation of the Eurosystem monetary policy framework (ECB/2022/48)



THE GOVERNING COUNCIL OF THE EUROPEAN CENTRAL BANK,

Having regard to the Treaty on the Functioning of the European Union, and in particular the first indent of Article 127(2) thereof,


Having regard to the Statute of the European System of Central Banks and of the European Central Bank, and in particular the first indent of Article 3.1, Articles 9.2, 12.1, 14.3 and 18.2 and the first paragraph of Article 20 thereof,

Whereas:







(1)


Achieving a single monetary policy entails defining the tools, instruments and procedures to be used by the Eurosystem in order to implement such a policy in a uniform manner throughout the Member States whose currency is the euro.












(2)


In accordance with the second indent of Article 18.1 of the Statute of the European System of Central Banks and of the European Central Bank, the European Central Bank (ECB) and the national central banks of the Member States whose currency is the euro (hereinafter the ‘NCBs’) may conduct credit operations with credit institutions and other market participants, with lending being based on adequate collateral.












(3)


With the aim of safeguarding the adequacy of Eurosystem collateral, eligible assets mobilised as collateral for Eurosystem credit operations are subject to specific risk control measures in order to protect the Eurosystem against financial losses in circumstances in which its collateral has to be realised due to an event of default of a counterparty. The Eurosystem risk control framework is regularly reviewed in order to ensure adequate protection.












(4)


As a result of the regular review of the risk control framework for Eurosystem credit operations, and considering that the risk profile of other legislative covered bonds and of multi cédulas is similar to that of jumbo covered bonds, the Governing Council decided on 15 July 2022 that they should be subject to the same haircut valuations, and therefore all legislative covered bonds and multi cédulas should be included in haircut category II. Consequently, since there is no longer a distinction between jumbo covered bonds and other types of legislative covered bonds in the Eurosystem monetary policy framework, references to jumbo covered bonds should be removed from Guideline (EU) 2015/510 of the European Central Bank (ECB/2014/60) (1).












(5)


Therefore, Guideline (EU) 2015/510 (ECB/2014/60) should be amended accordingly,





HAS ADOPTED THIS GUIDELINE:



Article 1

Amendments

Guideline (EU) 2015/510 (ECB/2014/60) is amended as follows:






(1)


in Article 2, point (48) is deleted;










(2)


Annex XII is amended in accordance with the Annex to this Guideline.






Article 2

Taking effect and implementation


1.   This Guideline shall take effect on the day of its notification to the NCBs.


2.   The NCBs shall take the necessary measures to comply with this Guideline and apply them from 29 June 2023. They shall notify the ECB of the texts and means relating to those measures by 17 February 2023 at the latest.



Article 3

Addressees

This Guideline is addressed to all Eurosystem central banks.




Done at Frankfurt am Main, 16 December 2022.


For the Governing Council of the ECB


The President of the ECB

Christine LAGARDE
            





(1)  Guideline (EU) 2015/510 of the European Central Bank of 19 December 2014 on the implementation of the Eurosystem monetary policy framework (General Documentation Guideline) (ECB/2014/60) (OJ L 91, 2.4.2015, p. 3).




ANNEX
In Annex XII to Guideline (EU) 2015/510 (ECB/2014/60), Section VI is replaced by the following:

‘VI.   EXAMPLE 6: RISK CONTROL MEASURES








1.


This example illustrates the risk control framework applied to assets mobilised as collateral in the Eurosystem credit operations. It is based on the assumption that, in the calculation of the need for a margin call, accrued interest on the liquidity provided is taken into account and a trigger point of 0,5 % of the liquidity provided is applied. The example is based on the assumption that a counterparty participates in the following Eurosystem monetary policy operations:






(a)


a main refinancing operation starting on 21 September 2022 and ending on 28 September 2022 where the counterparty is allotted EUR 50 million at an interest rate of 1,25 %;










(b)


a longer-term refinancing operation starting on 22 September 2022 and ending on 21 December 2022 where the counterparty is allotted EUR 45 million at an interest rate of 1,25 %;










(c)


a main refinancing operation starting on 28 September 2022 and ending on 5 October 2022 where the counterparty is allotted EUR 35 million at an interest rate of 1,25 %.
















2.


The characteristics of the marketable assets mobilised by the counterparty to cover these operations are specified in Table 1.

Table 1


Marketable assets mobilised in the transactions


Characteristics













Name


Asset class


Maturity date


Coupon definition


Coupon frequency


Residual maturity


CQS


Haircut (%)




Asset A


Covered bond


21.12.2026


Fixed rate


6 months


4 years


1 -2 


2,50 




Asset B


Central government bond


24.2.2027


Variable rate


12 months


4 years


1 -2 


1,50 




Asset C


Corporate bond


24.1.2035


Zero coupon rate


 


12 years


1 -2 


10,00 















Prices in percentages (including accrued interest) (*1)





21.9.2022


22.9.2022


23.9.2022


26.9.2022


27.9.2022


28.9.2022


29.9.2022




101,61 


101,21 


99,50 


99,97 


99,73 


100,01 


100,12 




 


98,62 


97,95 


98,15 


98,56 


98,59 


98,57 




 


 


 


 


 


53,71 


53,62 








EARMARKING SYSTEM
First, it is assumed that the transactions are carried out with a national central bank (NCB) using a system where underlying assets are earmarked for each transaction. The valuation of assets mobilised as collateral is carried out on a daily basis. The risk control framework can then be described as follows (see also Table 2 below):








1.


On 21 September 2022, the counterparty enters into a collateralised lending transaction with the NCB, which receives EUR 50,6 million of Asset A. Asset A is a covered bond with a fixed coupon maturing on 21 December 2026 and allocated to credit quality step 1-2. It thus has a residual maturity of four years, therefore requiring a valuation haircut of 2,5 %. The market price of Asset A on its reference market on that day is 101,61 %, which includes the accrued interest on the coupon. The counterparty is required to provide an amount of Asset A, which, after deduction of the 2,5 % valuation haircut, exceeds the allotted amount of EUR 50 million. The counterparty therefore delivers Asset A for a nominal amount of EUR 50,6 million, the haircut-adjusted market value of which is EUR 50 129 294 on that day.












2.


On 22 September 2022, the counterparty enters into a repurchase transaction with the NCB, which purchases EUR 21 million of Asset A (market price 101,21 %, valuation haircut 2,5 %) and EUR 25 million of Asset B (market price 98,62 %). Asset B is a central government bond with variable rate coupon payments and allocated to credit quality step 1-2, to which a 1,5 % valuation haircut is applied. The haircut-adjusted market value of Asset A and Asset B on that day is EUR 45 007 923, thus exceeding the required amount of EUR 45 000 000.












3.


On 22 September 2022, the assets underlying the main refinancing operation initiated on 21 September 2022 are revalued. With a market price of 101,21 %, the haircut-adjusted market value of Asset A is still within the lower and upper trigger amounts. The collateral that was mobilised initially is consequently considered to cater for both the initial amount of liquidity provided and the accrued interest amounting to EUR 1 736.












4.


On 23 September 2022, the underlying assets are revalued: the market price of Asset A is 99,50 % and the market price of Asset B is 97,95 %. Accrued interest amounts to EUR 3 472 on the main refinancing operation initiated on 21 September 2022 and EUR 1 563 on the longer-term refinancing operation initiated on 22 September 2022. As a result, the haircut-adjusted market value of Asset A in the first transaction falls below the transaction’s amount to be covered, i.e. the liquidity provided plus the accrued interest, by EUR 915 147, but also below the lower trigger level of EUR 49 753 455.
The counterparty delivers EUR 950 000 of Asset A in nominal value terms, which, after deducting a 2,5 % haircut from the market value based on a price of 99,50 %, restores sufficient collateral coverage. NCBs may perform margin calls in cash rather than securities.
A margin call is also needed on the second transaction since the haircut-adjusted market value of the underlying assets used in this transaction (EUR 44 492 813) is below the lower trigger level (EUR 44 776 555). The counterparty therefore provides EUR 550 000 of Asset B with an haircut-adjusted market value of EUR 530 644.












5.


On 26 September 2022, the underlying assets are revalued, without resulting in any margin call for the transactions entered on 21 and 22 September 2022.
On 27 September 2022, the revaluation of assets underlying the long-term refinancing operation initiated on 22 September 2022 reveals that the haircut-adjusted market value of the assets provided exceeds the upper trigger level and leads to the NCB returning EUR 300 000 of Asset B in nominal value to the counterparty. If a margin had to be paid to the counterparty by the NCB in relation to the second transaction, such a margin could, in certain cases, be netted out with the margin paid to the NCB by the counterparty in relation to the first transaction. As a result, there would only be one margin settlement.












6.


On 28 September 2022, the counterparty repays the liquidity provided under the main refinancing operation initiated on 21 September 2022, including the accrued interest of EUR 12 153. The NCB returns EUR 51 550 000 of Asset A in nominal value.
On the same day the counterparty enters into a new collateralised lending transaction with the NCB, which purchases EUR 72,5 million of Asset C in nominal value terms. Since Asset C is a zero-coupon corporate bond with a residual maturity of 12 years and allocated to credit quality step 1-2, requiring a valuation haircut of 10 %, the corresponding haircut-adjusted market value on that day is of EUR 35 045 775.




POOLING SYSTEM
Second, it is assumed that the transactions are carried out with an NCB using a pooling system where assets included in the pool of assets used by the counterparty are not earmarked for specific transactions:








1.


The same sequence of transactions is used in this example as in the above example illustrating an earmarking system. The main difference is that, on the revaluation dates, the haircut-adjusted market value of all the assets in the pool has to cover the total amount of all of the counterparty’s outstanding operations with the NCB. The margin call of EUR 1 423 897 occurring on 23 September 2022 is identical in this example to the one required in the earmarking system case. The counterparty delivers EUR 1 500 000 of Asset A in nominal value terms, which, after deducting a 2,5 % haircut from the market value based on a price of 99,50 %, restores sufficient collateral coverage.












2.


Moreover, on 28 September 2022, when the main refinancing operation entered into on 21 September 2022 matures, the counterparty may keep the assets on its pool account. An asset can also be exchanged for another asset as shown in the example, where EUR 52,1 million of Asset A in nominal value are replaced with EUR 72,5 million of Asset C in nominal value to cover the liquidity provided and the accrued interest under all refinancing operations.












3.


The risk control framework in the pooling system is described in Table 3.

Table 2


Earmarking System

















Date


Outstanding transactions


Start date


End date


Interest rate (%)


Liquidity provided


Accrued interest


Total amount to be covered


Lower trigger amount


Upper trigger amount


Haircut-adjusted market value


Margin call




21.9.2022


Main refinancing


21.9.2022


28.9.2022


1,25 


50 000 000 


—


50 000 000 


49 750 000 


50 250 000 


50 129 294 


 




22.9.2022


Main refinancing


21.9.2022


28.9.2022


1,25 


50 000 000 


1 736 


50 001 736 


49 751 727 


50 251 745 


49 931 954 


 




 


Longer-term refinancing


22.9.2022


21.12.2022


1,25 


45 000 000 


—


45 000 000 


44 775 000 


45 225 000 


45 007 923 


 




23.9.2022


Main refinancing


21.9.2022


28.9.2022


1,25 


50 000 000 


3 472 


50 003 472 


49 753 455 


50 253 490 


49 088 325 


– 915 147 




 


Longer-term refinancing


22.9.2022


21.12.2022


1,25 


45 000 000 


1 563 


45 001 563 


44 776 555 


45 226 570 


44 492 813 


– 508 750 




26.9.2022


Main refinancing


21.9.2022


28.9.2022


1,25 


50 000 000 


8 681 


50 008 681 


49 758 637 


50 258 724 


50 246 172 


 




 


Longer-term refinancing


22.9.2022


21.12.2022


1,25 


45 000 000 


6 250 


45 006 250 


44 781 219 


45 231 281 


45 170 023 


 




27.9.2022


Main refinancing


21.9.2022


28.9.2022


1,25 


50 000 000 


10 417 


50 010 417 


49 760 365 


50 260 469 


50 125 545 


 




 


Longer-term refinancing


22.9.2022


21.12.2022


1,25 


45 000 000 


7 813 


45 007 813 


44 782 773 


45 232 852 


45 515 311 


507 499 




28.9.2022


Main refinancing


28.9.2022


5.10.2022


1,25 


35 000 000 


—


35 000 000 


34 825 000 


35 175 000 


35 045 775,00 


 




 


Longer-term refinancing


22.9.2022


21.12.2022


1,25 


45 000 000 


9 375 


45 009 375 


44 784 328 


45 234 422 


44 997 612,88 


 




29.9.2022


Main refinancing


28.9.2022


5.10.2022


1,25 


35 000 000 


1 215 


35 001 215 


34 826 209 


35 176 221 


34 987 050,00 


 




 


Longer-term refinancing


22.9.2022


21.12.2022


1,25 


45 000 000 


10 938 


45 010 938 


44 785 883 


45 235 992 


45 015 161,13 


 





Table 3


Pooling System

















Date


Outstanding transactions


Start date


End date


Interest rate (%)


Liquidity provided


Accrued interest


Total amount to be covered


Lower trigger amount  (1)



Upper trigger amount  (2)



Haircut-adjusted market value


Margin call




21.9.2022


Main refinancing


21.9.2022


28.9.2022


1,25 


50 000 000 


—


50 000 000 


49 750 000 


Not applicable


50 129 294 


 




22.9.2022


Main refinancing


21.9.2022


28.9.2022


1,25 


50 000 000 


1 736 


95 001 736 


94 526 727 


Not applicable


94 939 876 


 




 


Longer-term refinancing


22.9.2022


21.12.2022


1,25 


45 000 000 


—


 


 


 


 


 




23.9.2022


Main refinancing


21.9.2022


28.9.2022


1,25 


50 000 000 


3 472 


95 005 035 


94 530 010 


Not applicable


93 581 138 


–1 423 897 




 


Longer-term refinancing


22.9.2022


21.12.2022


1,25 


45 000 000 


1 563 


 


 


 


 


 




26.9.2022


Main refinancing


21.9.2022


28.9.2022


1,25 


50 000 000 


8 681 


95 014 931 


94 539 856 


Not applicable


95 420 556 


 




 


Longer-term refinancing


22.9.2022


21.12.2022


1,25 


45 000 000 


6 250 


 


 


 


 


 




27.9.2022


Main refinancing


21.9.2022


28.9.2022


1,25 


50 000 000 


10 417 


95 018 229 


94 543 138 


Not applicable


95 350 464 


 




 


Longer-term refinancing


22.9.2022


21.12.2022


1,25 


45 000 000 


7 813 


 


 


 


 


 




28.9.2022


Main refinancing


28.9.2022


5.10.2022


1,25 


35 000 000 


—


80 009 375 


79 609 328 


Not applicable


79 800 610 


 




 


Longer-term refinancing


22.9.2022


21.12.2022


1,25 


45 000 000 


9 375 


 


 


 


 


 




29.9.2022


Main refinancing


28.9.2022


5.10.2022


1,25 


35 000 000 


1 215 


80 012 153 


79 612 092 


Not applicable


79 759 483 


 




 


Longer-term refinancing


22.9.2022


21.12.2022


1,25 


45 000 000 


10 938 


 


 


 


 


 











(*1)  The prices shown for a specific valuation date correspond to the most representative price on the business day preceding this valuation date.

(1)  In a pooling system, the lower trigger amount is the lowest threshold for margin calls. In practice most NCBs require additional collateral whenever the haircut-adjusted market value of the collateral pool falls below the total amount to be covered.

(2)  In a pooling system, the notion of upper trigger amount is not relevant, since the counterparty will constantly target an excess amount of collateral provided in order to minimise operational transactions.’