ECB Continues To Have Problems With Collateral Management - Report

Date : 01/06/2013 @ 11:37AM
Source : Dow Jones News
Stock : Eclipse Resources Corp. (ECR)
Quote : 1.26  0.0 (0.00%) @ 7:00AM

ECB Continues To Have Problems With Collateral Management - Report

Societe Generale (EU:GLE)
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The European Central Bank continues to have problems with its collateral management, according to a German newspaper report Sunday.

The Bank of France, a member of the European System of Central Banks, has granted too much credit compared with collateral to six banks due to insufficient risk valuation discounts, or haircuts, made on the collateral, reports German newspaper Welt am Sonntag. The Bank provided credit in exchange for bonds known as Short-Term European Paper, or STEP, which it accepted as collateral from the banks, the newspaper says.

According to the report, notes worth less than 6.5 billion euros ($8.5 billion) with maturities of up to one year that were issued by the six banks benefited from risk valuation discounts that were too small. As a result, the banks were able to get up to EUR550 million in additional central bank money without having to provide the corresponding collateral, the newspaper calculates. According to the report, the six banks included French Societe Generale SA (GLE.FR) and Italy's UniCredit SpA (UCG.MI).

The banks had, however, provided sufficient other collateral overall so there was no impact on monetary policy operations, the newspaper quotes the ECB as saying.

An ECB spokeswoman, asked to remark on the report by Dow Jones Newswires Sunday, referred to the fact that there was no impact on the monetary policy operations and said she had no further comments.

Spokespeople at the Bank of France and Euroclear France weren't immediately available to comment to Dow Jones Newswires Sunday.

Within the Eurosystem, the Bank of France provides the relevant data--such as volume, coupon or default risk--on short-term European paper to the ECB. The ECB says it has little information about that market segment and refers to the BOF, according to the newspaper.

According to the ECB, in 113 cases the risk valuation discounts for STEP collateral calculated by the BOF were wrong, the newspaper says.

Bank of France said it gets the data exclusively from Euroclear France, the newspaper reports. Euroclear France belongs to Euroclear Group which also owns Euroclear Bank, itself a big player in the European short-term paper market, that could cause substantial conflict of interest, the newspaper writes.

In recent years, the ECB has substantially expanded the list of securities it accepts as collateral in monetary policy refinancing operations.

In November, the same newspaper uncovered that the Bank of Spain rated certain Spanish sovereign debt better than the Eurosystem rating rules would have allowed. Since then, national central banks have come under additional scrutiny. However, the valuation of STEP paper by Euroclear France hasn't yet been changed.

Newspaper website:

(Hans Bentzien contributed to this report.)

Write to the Frankfurt Bureau at

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