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ECB will accept Greek government bonds as collateral

The European Central Bank (ECB) announced on Tuesday that it will accept Greek government bonds as collateral as the coronavirus pandemic hit the eurozone. The ECB will accept government-guaranteed loans as collateral even with lower credit quality, and it will allow banks to pledge more unsecured debt as collateral.

“A waiver of the minimum credit quality requirement for marketable debt instruments issued by the Hellenic Republic for acceptance as collateral in Eurosystem credit operations,” the ECB said in a statement, among others.

It will also reduce collateral valuation haircuts by a fixed factor of 20% and will start accepting Greek government debt as collateral, even if such papers are below investment grade.

The ECB also said it will make it easier for banks to borrow cash at rock bottom rates during the coronavirus crisis, as it eased collateral requirements even at the cost of taking on greater risk.

The ECB adopts an unprecedented set of collateral measures to mitigate the tightening of financial conditions across the euro area, the statement said. The measures include:

– Temporary increase in the Eurosystem’s risk tolerance in order to support credit to the economy
– ECB eases the conditions for the use of credit claims as collateral
– ECB adopts a general reduction of collateral valuation haircuts
– Waiver to accept Greek sovereign debt instruments as collateral in Eurosystem credit operations
– ECB will assess further measures to temporarily mitigate the effect on counterparties’ collateral availability from rating downgrades.

The measure will stay in place during the current pandemic and will be reviewed before the end of the year, the ECB said.

Prime Minister Kyriakos Mitsotakis welcomed the decisions and wrote in a tweet:

finance Minister Christos Staikouras said “Today’s decision by the ECB to start accepting Greek government debt as collateral significantly widens the funding sources for Greek banks and strengthens their ability to support the real economy, enterprises and households.”

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