The European Central Bank has removed almost a third of the bank debt it added three weeks ago to the list of assets against which it would lend, the FT says, after discovering that many of the instruments may not meet its requirements. The mass deletion of 3,192 debt instruments in a single day last week, almost all of them French certificates of deposit, takes place amid an intense focus on banks’ collateral and cash-raising capabilities. However, the decision is unlikely to leave banks with insufficient collateral, after a loosening of requirements at the start of the year added more than 10,000 new instruments. Further loosening due soon will allow banks to swap pools of mortgages and small business loans for cash from the central bank. The ECB said the Banque de France, the French arm of the eurosystem of central banks, decided to withdraw the assets “as a precautionary measure” after finding that some of the notes may not comply with its rules.
The ECB said the Banque was now going through the deleted instruments one by one to check whether they were eligible. The problem arose mainly from certificates of deposit that pay interest linked to variable indices, such as equities. Some of these could in principle lead to negative interest rates.

This entry was posted by Kate Mackenzie on Monday, January 23rd, 2012 at 3:34 and is featured in The 6am Cut London (23 Jan 2012), The Lunch Wrap (23 Jan 2012) . Tagged with collateral, ecb, European Central Bank, LTRO. Edit this entry.