The European Central Bank (ECB) has removed syndicated loans governed by English law from its list of collateral eligible for its credit operations only four days after they were originally accepted.
On October 15, the ECB widened the framework of eligible collateral in an effort to facilitate access to its credit lines and boost liquidity among European banks. The Bank of England specifically excluded syndicated-loans in the range of collateral it would accept on its own credit schemes earlier last month.
Euro-dominated syndicated loans and various debt instruments would qualify under the new guidelines, while the ECB also enhanced its longer-term refinancing operations to help banks in an increasingly hostile credit environment.
However, the ECB ceased to accept syndicated loans as collateral for its credit lines on November 21, having only started to admit them on November 17. The collateral was originally intended to be eligible until the end of 2009.
The move has puzzled bankers and ratings agencies alike, particularly as the ECB is refusing to comment on why it no longer accepts the loans. One ratings agency analyst speculated the ECB may be concerned that a credit event on the loans would be out of their jurisdiction, which could cause them unnecessary problems.
"It's most mysterious," said one head of global credit strategy at a multinational bank. "You would have thought that somebody was, in their minds, abusing the system, and so they put a stop to it."
"But it could be something perfectly innocent like the ECB realised it would be difficult to price this stuff as syndicated loans never trade," he added.
An ECB official said that the bank believes it currently accepts a sufficient range of collateral to allow banks access to its liquidity schemes, begging the question why it decided to accept syndicated loans in the first place.
Topics: European Central Bank (ECB)
More on Regulation
State watchdogs issue warnings as insurers turn to proprietary index products
Japanese banks start to ponder how they will cope with new TLAC rules
Greater flexibility welcomed, but problems may remain for mortgage lenders
FCA investigating delays and handling of mis-selling cases
Sign up for Risk.net email alerts
Sponsored video: MarketAxess
Sponsored video: Tradeweb
Multifonds talks to Custody Risk on being nominated for the Post-Trade Technology Vendor of the Year at the Custody Risk Awards 2014
Sponsored webinar: IBM Risk Analytics
There are no comments submitted yet. Do you have an interesting opinion? Then be the first to post a comment.