BANQUE CENTRALE DU LUXEMBOURG

Regulation of the Central Bank of Luxembourg 2020/ No. 27

of 20 April 2020

amending the Regulation of the Central Bank of Luxembourg 2014/ No. 18

of 21 August 2014 implementing ECB/2014/31 on additional temporary measures concerning Eurosystem refinancing operations and collateral eligibility

The Directorate of the Central Bank of Luxembourg,

Having regard to the Treaty on the Functioning of the European Union and in particular Article 127(2), first indent;

Having regard to the Statute of the European System of Central Banks and of the European Central Bank, and in particular Articles 3.1, 12.1 and 18;

Having regard to Article 108bis of the Constitution;

Having regard to the Law of 23 December 1998 on the monetary status and the Central Bank of Luxembourg (hereinafter the "Central Bank") as amended, in particular Articles 2(1), 2(2) and 34(1);

Whereas:

(1) Pursuant to Article 18.1 of the Statute of the European System of Central Banks and of the European Central Bank (hereinafter the "ESCB Statutes"), the European Central Bank (ECB) and the national central banks of the Member States whose currency is the euro (hereinafter the "NCBs") may conduct credit operations with credit institutions and other market participants on the basis of appropriate collateral for loans, in order to achieve the objectives of the ESCB. The general conditions under which the ECB and the NCBs are willing to conduct credit operations, including the criteria determining the eligibility of collateral for Eurosystem credit operations, are defined in European Central Bank (ECB/2014/60)1.

(2) The 2019 novel coronavirus disease (COVID-19) has been qualified as a pandemic by the World Health Organization and is the cause of a collective public health emergency unprecedented in modern history. It has caused an extreme economic shock that requires an ambitious, coordinated and urgent response on all fronts to support businesses and workers at risk. As a result of the pandemic, economic activity in the euro area as a whole is declining and will inevitably suffer a sharp contraction, notably because more countries are facing the need to intensify confinement measures. These measures exert strong pressures on the cash flows of businesses and workers and jeopardize the survival of businesses and jobs. It is also clear that this situation hinders the transmission of monetary policy impulses and poses serious downside risks to relevant inflation prospects.

(3) On 7 April 2020, the Governing Council adopted a series of decisions to respond to the coronavirus pandemic, which could compromise the price stability objective as well as the proper functioning of the monetary policy transmission mechanism. These include collateral easing measures aimed at facilitating the preservation and mobilization, by Eurosystem counterparties, of sufficient collateral in order to be able to participate in liquidity-providing operations. Consequently, participation in these operations will be based on modified collateral eligibility criteria and modified risk control measures. These measures are proportionate to counter the serious risks to price stability, the monetary policy transmission mechanism and the economic prospects of the euro area, which are due to the emergence and growing spread of COVID-19.

(4) In order to mitigate the adverse consequences on the availability of collateral of pronounced rating downgrades that the spread of COVID-19 may generate, the Governing Council considers that the Eurosystem can temporarily increase its risk tolerance to favor counterparties' access to liquidity and, thus, to also support the provision of credit to the euro area economy, including by lowering the haircuts applied to certain assets used as collateral.

(5) The additional measures set out in the amendments made pursuant to this Regulation must apply temporarily, the Governing Council being required to re-evaluate, before the end of the year, the need to extend one or other of these temporary measures to ensure the proper functioning of the monetary policy transmission mechanism. In doing so, the Governing Council will also take into account the need for Eurosystem counterparties that participate or will participate in targeted longer-term refinancing operations conducted pursuant to European Central Bank (ECB/2019/21)2 to maintain the availability of collateral throughout the duration of these operations.

(6) The Regulation of the Central Bank of Luxembourg 2014/ No. 18 of 21 August 2014 implementing ECB/2014/313 on additional temporary measures concerning Eurosystem refinancing operations and collateral eligibility should therefore be amended accordingly,

HAS ADOPTED THIS REGULATION:

Article 1. Amendments

The Regulation of the Central Bank of Luxembourg 2014/ No. 18 of 21 August 2014 is amended as follows:

1. Annex II bis is replaced by the following text:

ANNEXE II bis Haircuts (in %) applied to eligible asset-backed securities pursuant to Article 3(2) of this Guideline

Weighted Average Life (*)	Haircut
[0,1)	4.8
[1,3)	7.2
[3,5)	10.4
[5,7)	12.0
[7,10)	14.4
[10, ∞)	24.0

(*) That is, [0-1) residual maturity/weighted average life less than one year, [1-3) residual maturity/weighted average life equal to or greater than one year but less than three years, etc.

2. the following Annex II ter is inserted:

ANNEXE II ter Haircuts (in %) applied to eligible marketable assets of haircut category I for credit quality tranches 4 and 5

Credit Quality	Residual Maturity (in years) (*)	Category I Fixed Coupon	Category I Zero Coupon	Category I Variable Coupon
Tranche 4	[0,1)	6.4	-	-
	[1,3)	9.6	10.4	9.6
	[3,5)	11.2	12	11.2
	[5,7)	12.4	13.6	12.4
	[7,10)	13.2	14.4	13.2
	[10, ∞)	14.4	16.8	14.4
Tranche 5	[0,1)	8	-	-
	[1,3)	11.2	12	11.2
	[3,5)	13.2	14	13.2
	[5,7)	14.4	15.6	14.4
	[7,10)	15.2	16.4	15.2
	[10, ∞)	16.4	18.8	16.4

(*) That is, [0-1) residual maturity less than one year, [1-3) residual maturity equal to or greater than one year but less than three years, etc.

Article 2. Entry into force

This Regulation shall enter into force on the day of its publication.

Article 3. Publication

This Regulation shall be published in the Official Journal of the Grand Duchy of Luxembourg and on the website of the Central Bank (www.bcl.lu).

BANQUE CENTRALE DU LUXEMBOURG
The Directorate

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1 European Central Bank Guideline (EU) 2015/510 of 19 December 2014 on the implementation of the Eurosystem monetary policy framework (Guideline on general documentation) (ECB/2014/60) (OJ L 91 of 2.4.2015, p. 3).

2 European Central Bank Decision (EU) 2019/1311 of 22 July 2019 concerning a third series of targeted longer-term refinancing operations (ECB/2019/21) (OJ L 204 of 2.8.2019, p. 100).

3 ECB Guideline ECB/2014/31 of 9 July 2014 on additional temporary measures concerning Eurosystem refinancing operations and collateral eligibility and amending Guideline ECB/2007/9 (OJ L 240 of 13.8.2014, p. 28).