Circular BCL 2000/159 of August 11, 2000 — Application of Haircuts for Eligible Securities and Eligibility of Dutch Private Claims

Luxembourg, August 11, 2000
To all credit institutions
CIRCULAR BCL 2000/159
Application of Haircuts for Eligible Securities Eligibility of Dutch Private Claims

Dear Madam, Dear Sir,

Please find below provisions that modify and supplement in three points the General Conditions subscribed to by the monetary policy counterparties of the BCL, particularly Annex 8, point 4.5.4. These modifications follow decisions taken by the Governing Council of the European Central Bank.

In accordance with point 1.19 of the General Conditions, these modifications are brought directly to the knowledge of account holders by the Bank and apply automatically upon their receipt of this circular. The modifications will also be integrated into the next update of the Bank's General Conditions.

I. The following haircuts are applied to variable rate reverse instruments from Level 1 list, starting September 1, 2000:

Level 1 Assets
Haircuts Applied to Variable Rate Reverse Instruments

• 1.5% for instruments with a residual maturity less than or equal to 1 year
• 4% for instruments with a residual maturity between 1 and 3 years
• 8% for instruments with a residual maturity between 3 and 7 years
• 12% for instruments with a residual maturity of more than 7 years

II. In order to homogenize the numerous haircuts related to Level 2 assets and strengthen the transparency of risk control measures applicable within the eurosystem, new valuation haircuts, included in the table below, are applied starting September 1, 2000.

Level 2 Assets
Haircuts Applied to Equities
The haircut is based on the most unfavorable price evolution over 2 consecutive days, observed since January 1, 1987, with a minimum of 20%.

Level 2 Assets
Haircuts Applied to Negotiable Debt Securities with Limited Liquidity

• 1% for instruments with a residual maturity less than or equal to 1 year
• 2.5% for instruments with a residual maturity between 1 and 3 years
• 5% for instruments with a residual maturity between 3 and 7 years
• 7% for instruments with a residual maturity of more than 7 years

An additional haircut is applied to variable rate reverse instruments from the Level 2 list:

• 1% for instruments with a residual maturity less than or equal to 1 year
• 2.5% for instruments with a residual maturity between 1 and 3 years
• 5% for instruments with a residual maturity between 3 and 7 years
• 7% for instruments with a residual maturity of more than 7 years

Level 2 Assets
Haircuts Applied to Debt Securities with Restricted Liquidity and Special Characteristics

• 2% for instruments with a residual maturity less than or equal to 1 year
• 6% for instruments with a residual maturity between 1 and 3 years
• 13% for instruments with a residual maturity between 3 and 7 years
• 20% for instruments with a residual maturity of more than 7 years

Level 2 Assets
Haircuts Applied to Non-Negotiable Instruments Commercial Paper

• 2% for a residual maturity less than or equal to 6 months
  Bank Loans
• 10% for a residual maturity less than or equal to 6 months
• 20% for a residual maturity between 6 months and 2 years
  Promissory Notes Secured by Mortgage Claims
• 20% for a residual maturity less than or equal to 2 years

III. From the same date, the following Dutch private claims are eligible:

• Claims of credit institutions on Dutch local and regional public bodies
• Claims of credit institutions on housing associations constituted under Dutch law, guaranteed by a guarantee from the "Waarborgfonds Sociale Woningbouw"
• Claims of credit institutions on legal entities constituted under Dutch law, for which the debtor or guarantor meets the solvency criteria established for securities in the Level 1 list.

For any further information, you are invited to contact the Back Office Securities section (Tel. 4774 4454 or 4774 4451).

Please accept, Madam, Sir, the assurance of our distinguished sentiments.

BANQUE CENTRALE DU LUXEMBOURG
The Management

Andrée BILLON
Director
Yves MERSCH
General Director