Decision No. 2020-04 of May 27, 2020 amending Decision No. 2020-02 on additional temporary measures concerning Banque de France refinancing operations and collateral eligibility

Decision No. 2020-04 of May 27, 2020 amending Decision No. 2020-02 on additional temporary measures concerning Banque de France refinancing operations and collateral eligibility

THE GOVERNOR OF THE BANQUE DE FRANCE

Having regard to:

• the Treaty on the Functioning of the European Union, and in particular Article 127, paragraph 1 and paragraph 2, first indent,
• the Statute of the European System of Central Banks and of the European Central Bank (ECB), and in particular Articles 3.1, first indent, 12.1, 14.3 and 18.2,
• ECB Guideline (EU) 2014/528 of 9 July 2014 on additional temporary measures concerning refinancing operations of the Eurosystem and collateral eligibility and amending Guideline ECB/2007/9 (ECB/2014/31), as amended,
• ECB Guideline (EU) 2015/510 of 19 December 2014 on the implementation of the Eurosystem monetary policy framework (ECB/2014/60), as amended,
• the Monetary Agreement between the European Union and the Principality of Monaco of 26 December 2001, as amended on 29 November 2011,
• the Monetary and Financial Code, and in particular Article L. 142-8,
• the Order of 23 March 2020 granting State guarantee to credit institutions and financing companies under Article 4 of Law No. 2020-289 of 23 March 2020 on the 2020 Finance Rectifying Law, as amended,
• the Decision of the Governor of the Banque de France No. 2015-01 of 22 April 2015 on the implementation of the monetary policy and intraday credit of the Banque de France, as amended,
• Decision No. 2020-02 of 20 April 2020 on additional temporary measures concerning Banque de France refinancing operations and collateral eligibility, as amended.

DECIDES

Article 1

The Decision of the Governor of the Banque de France No. 2020-02 of 20 April 2020 on additional temporary measures concerning Banque de France refinancing operations and collateral eligibility (hereinafter "the Decision") is amended as follows:

1. Article 4 (BDF1) a) Paragraph 1.a) i) a. is replaced by the following text: "a. Loans in euros or US dollars (USD) whose credit quality, defined by a credit assessment, corresponds to a maximum one-year probability of default of 1.5% according to an internal rating system authorized by the competent supervisory authority or to the achievement of at least a Banque de France (FIBEN) rating of 4. The residual maturity of loans concerning debtors whose one-year probability of default is greater than 1% and less than or equal to 1.5% (EQC 5) must be less than or equal to 30 years;"

b) The following paragraph 1.a) iii) is inserted before paragraph 1.b): "iii) Loans guaranteed by the French State under Article 6 of Law No. 2020-289 of 23 March 2020 on the 2020 Finance Rectifying Law, granted as of 16 March 2020, and meeting the following criteria: a. The debtor is an entity mentioned in Article 3 of the Order of 23 March 2020 amended; b. The debtor is not in a situation of default under Article 178 of Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 with the counterparty and, where applicable, with any other establishment of the group, in France or in another country, of which the counterparty is a part; c. Their residual maturity is less than or equal to six years; d. The loans are denominated in euros; e. The loans are governed by French law; f. The loans are senior claims of banks; g. The credit quality of the debtor can be assessed either by an internal rating system ('IRB') approved by the ECAF, or by any internal rating system previously validated by the supervisor; h. The credit quality of loans guaranteed by the French State and disbursed for two months or less is assessed based on the solvency of the debtor, which must correspond to a maximum one-year probability of default of 1.5% according to an internal rating system authorized by the competent supervisory authority or to the achievement of at least a Banque de France (FIBEN) rating of 4. The haircut rate table applicable to this category of loans is set out in Table 1 of Annex BDF bis; i. The credit quality of loans guaranteed by the French State and disbursed for more than two months is assessed based on the solvency of the debtor. In the absence of an assessment of the latter by an internal rating system and a FIBEN rating, these loans are considered as loans with a probability of default strictly greater than 5%. The haircut rate table applicable to this category of loans disbursed for more than two months depends on the following elements:

1. For loans where the clause allowing for the amortization of the loan over an additional period of one, two, three, four, or five years after the first year, under Article 2 of the Order of 23 March 2020, has not been activated by the borrower, the applicable haircut will be determined based on their probability of default and the portion guaranteed by the French State. The haircut rate table applicable to this category of loans is set out in Table 2 of Annex BDF bis;
2. For loans where the clause allowing for the amortization of the loan over an additional period of one, two, three, four, or five years after the first year, under Article 2 of the Order of 23 March 2020, has been activated by the borrower, the applicable haircut will be determined based on their probability of default, the portion guaranteed by the French State, and the residual maturity. The haircut rate table applicable to this category of loans is set out in Table 3 of Annex BDF bis."

c) Paragraph 1.b) i) h. is replaced by the following text: "h. The loan debtor is subject to a credit assessment by an internal rating system ('IRB') approved by the ECAF;"

d) Paragraph 1.b) ii) c. is replaced by the following text: "c. For each loan, the one-year probability of default of the debtor, attributed by an internal rating system ('IRB') approved by the ECAF, is less than or equal to 1%;"

2. Article 4 (BDF3) Paragraph 1 is replaced by the following text: "1. Regarding loans to companies with a one-year probability of default between 0.40% and 1%, the following haircut rate table applies:

Residual Maturity | Haircut Rate < 1 year | 28% 1-3 years | 38.4% 3-5 years | 41.6% 5-7 years | 44% 7-10 years | 45.6%

10 years | 48%

Regarding loans to companies with a one-year probability of default between 1% and 1.5%, the following haircut rate table applies:

Residual Maturity | Haircut Rate < 1 year | 40% 1-3 years | 48% 3-5 years | 51.2% 5-7 years | 52.8% 7-10 years | 54.4% 10-30 years | 56%

An additional haircut of 16% is applied to loans to companies denominated in US dollars (USD)."

3. The following Annex BDF bis is inserted:

"Annex BDF bis Haircuts applicable to loans guaranteed by the French State under Article 6 of Law No. 2020-289 of 23 March 2020 on the 2020 Finance Rectifying Law

TABLE 1: HAIRCUTS APPLICABLE TO LOANS GUARANTEED BY THE FRENCH STATE FOR TWO MONTHS OR LESS

TABLE 2: HAIRCUTS APPLICABLE TO LOANS GUARANTEED BY THE FRENCH STATE FOR MORE THAN TWO MONTHS, WITHOUT DEFINITION OF AN AMORTIZATION PLAN OVER A DURATION OF ONE, TWO, THREE, FOUR OR FIVE ADDITIONAL YEAR(S) AFTER THE FIRST YEAR

FIBEN Rating	Probability of Default	State Guarantee Quota
		90%
3++ / 3+ / 3	PD ≤ 0.1%	12.8%
4+	0.1% < PD ≤ 0.4%	14.4%
4	0.4% < PD ≤ 1.0%	15.7%
-	1.0% < PD ≤ 1.5%	16.6%
5+	1.5% < PD ≤ 3%	21.5%
-	3% < PD ≤ 5%	21.5%
5 / 6 / 7 / 8	PD > 5% and unrated debtors	21.5%

FIBEN Rating	Probability of Default (PD)	Haircut Rate
3++ / 3+ / 3	PD ≤ 0.1%	12.8%
4+	0.1% < PD ≤ 0.4%	29.2%
4	0.4% < PD ≤ 1.0%	41.6%
-	1.0% < PD ≤ 1.5%	51.2%

TABLE 3: HAIRCUTS APPLICABLE TO LOANS GUARANTEED BY THE FRENCH STATE DISBURSED FOR MORE THAN TWO MONTHS, AFTER DEFINITION OF AN AMORTIZATION PLAN OVER A MAXIMUM DURATION OF FIVE ADDITIONAL YEARS AFTER THE FIRST YEAR

• That is to say [0-1[ residual duration less than one year, [1-3[ residual duration equal to or greater than one year but less than three years, etc.

Residual Duration (in years) after the first year *	FIBEN Rating	Probability of Default (PD)	State Guarantee Quota
			90%
[0-1[	3++ / 3+ / 3	PD ≤ 0.1%	6.40%
	4+	0.1% < PD ≤ 0.4%	7.00%
	4	0.4% < PD ≤ 1.0%	8.60%
	-	1.0% < PD ≤ 1.5%	9.80%
	5+	1.5% < PD ≤ 3%	15.80%
	-	3% < PD ≤ 5%	15.80%
	5 / 6 / 7 / 8	PD > 5%, unrated debtors	15.80%
[1-3[	3++ / 3+ / 3	PD ≤ 0.1%	9.60%
	4+	0.1% < PD ≤ 0.4%	10.90%
	4	0.4% < PD ≤ 1.0%	12.50%
	-	1.0% < PD ≤ 1.5%	13.40%
	5+	1.5% < PD ≤ 3%	18.60%
	-	3% < PD ≤ 5%	18.60%
	5 / 6 / 7 / 8	PD > 5%, unrated debtors	18.60%
[3-5[	3++ / 3+ / 3	PD ≤ 0.1%	12.80%
	4+	0.1% < PD ≤ 0.4%	14.40%
	4	0.4% < PD ≤ 1.0%	15.70%
	-	1.0% < PD ≤ 1.5%	16.60%
	5+	1.5% < PD ≤ 3%	21.50%
	-	3% < PD ≤ 5%	21.50%
	5 / 6 / 7 / 8	PD > 5%, unrated debtors	21.50%

Article 2 Publication and entry into force

1. This Decision is published in the Official Publication Register of the Banque de France.
2. It enters into force on the day of its publication.
3. This Decision is applicable in the overseas departments and regions, in Saint-Barthélemy, in Saint-Martin, in Saint-Pierre-and-Miquelon, as well as in the Principality of Monaco.

Done in Paris, on 27 May 2020

François VILLEROY de GALHAU