Decision No. 2018-02 of 16 April 2018 amending Decision No. 2016-02 of 25 January 2016 on valuation haircuts applied during the implementation of the Eurosystem monetary policy

Decision No. 2018-02 of 16 April 2018 amending Decision No. 2016-02 of 25 January 2016 on valuation haircuts applied during the implementation of the Eurosystem monetary policy

THE GOVERNOR OF THE BANK OF FRANCE

Having regard to:

• the Treaty on the Functioning of the European Union, and in particular Article 127(1) and Article 127(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) 2015/510 of 19 December 2014 on the implementation of the Eurosystem monetary policy framework (ECB/2014/60), as amended,
• ECB Guideline (EU) 2016/65 of 18 November 2015 on haircuts applied during the implementation of the Eurosystem monetary policy framework (ECB/2015/35), as amended,
• ECB Guideline of 7 February 2018 amending Guideline (EU) 2016/65 on haircuts applied during the implementation of the Eurosystem monetary policy framework (ECB/2018/4),
• 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 Governor of the Bank of France Decision No. 2015-01 of 22 April 2015 on the implementation of the Bank of France's monetary policy and intraday credit, as amended,
• the Governor of the Bank of France Decision No. 2016-02 of 25 January 2016 on valuation haircuts applied during the implementation of the Eurosystem monetary policy, as amended,

HEREBY DECIDES:

Article 1

The Governor of the Bank of France Decision No. 2016-02 of 25 January 2016 on valuation haircuts applied during the implementation of the Eurosystem monetary policy (hereinafter "the Decision") is amended as follows:

1. Article 2:
   a) Paragraph 2 is replaced by the following text:

   "2. With regard to negotiable assets assigned to haircut categories I to IV, the applicable haircut depends on the residual maturity and the coupon structure of the asset (fixed, zero, variable) as determined from Table 2 of the Annex to this Guideline. The maturity to be taken into account to determine the applicable haircut is the residual maturity of the asset, regardless of the coupon structure. The following provisions apply with regard to the coupon structure:
   a) variable coupons with a reset period of more than one year are treated as fixed-rate coupons; b) variable coupons that have the Euro area inflation index as the reference rate are treated as fixed-rate coupons; c) variable coupons having a floor not equal to zero and/or floating coupons having a cap are treated as fixed-rate coupons; d) the haircut applied to assets with multiple coupon structures depends solely on the coupon structure in place during the residual life of the asset; it is equal to the highest applicable haircut for a negotiable asset with the same residual maturity and credit quality tier. Any coupon structure in place during the residual life of the asset may be considered for this purpose. "

   b) The following paragraph 2a is inserted:

   "2a. The residual maturity of covered bonds used for own account is defined as the maximum legal maturity, taking into account any extension rights for the repayment of principal provided for in their contractual terms. For the purposes of this paragraph, 'own' refers to the submission or use, by a counterparty, of covered bonds that are issued or guaranteed by the counterparty itself or by any other entity with which this counterparty has close links as determined in accordance with Article 138 of Guideline (EU) 2015/510 (ECB/2014/60). "

2. Article 4, point c) is replaced by the following text:

   "c) for the purposes of point b), 'used for own account' has the same meaning as in Article 3, paragraph 2, point a bis). "

3. Article 5:
   a) Paragraph 1 is replaced by the following text:

   "1. Individual private claims are subject to specific haircuts, determined according to the residual maturity, the credit quality tier of the coupon structure, and the valuation method applied by the NCB, as indicated in Table 3 of the Annex to this Guideline. "

   b) Paragraph 2 is replaced by the following text:

   "2. An interest payment is treated as a variable rate payment if it is indexed to a reference interest rate and if the reset period corresponding to this payment is not more than one year. Interest payments for which this period is more than one year are treated as fixed rate payments, the maturity taken into account for the haircut being the residual maturity of the private claim. "

   c) The following paragraph is added to paragraph 2:

   "A private claim is treated as a fixed-rate private claim for the application of haircuts whenever it is possible that the private claim may result in a payment at a fixed interest rate, based on the value of an eligible reference interest rate listed in Article 90, point b, iii) of Guideline (EU) 2015/510 (ECB/2014/60), in particular when the coupon is subject to an explicit cap or a floor not equal to zero. "

   d) Paragraph 5 is replaced by the following text:

   "A haircut of 31.5% applies to non-negotiable debt instruments backed by retail mortgage claims (retail mortgage-backed debt instrument — RMBD). "

   "Regarding the current coverage, in each of at least three of the four asset categories, a) unsecured bank bonds, b) private sector bonds, c) covered bonds and d) asset-backed securities (ABS), the rating agency must provide a minimum coverage of: "

4. Annex:
   a) Table 2 is replaced by the following table:

   "Table 2
   Haircut rates applied to eligible negotiable assets of haircut categories I to IV

   Haircut Categories
   Credit Quality
   Residual Maturity (in years) ()
   Category I
   Category II
   Category III
   Category IV fixed coupon zero coupon variable coupon fixed coupon zero coupon variable coupon fixed coupon zero coupon variable coupon fixed coupon zero coupon variable coupon Tiers 1 and 2 0-1 0.5 1.0 7.5 1-3 1.0 2.0 0.5 1.5 2.5 1.0 2.0 3.0 1.0 10.0 10.5 7.5 3-5 1.5 2.5 0.5 2.5 3.5 1.0 3.0 4.5 1.0 13.0 13.5 7.5 5-7 2.0 3.0 1.0 3.5 4.5 1.5 4.5 6.0 2.0 14.5 15.5 10.0 7-10 3.0 4.0 1.5 4.5 6.5 2.5 6.0 8.0 3.0 16.5 18.0 13.0 >10 5.0 7.0 2.0 8.0 10.5 3.5 9.0 13.0 4.5 20.0 25.5 14.5 Haircut Categories Credit Quality Residual Maturity (in years) () Category I Category II Category III Category IV fixed coupon zero coupon variable coupon fixed coupon zero coupon variable coupon fixed coupon zero coupon variable coupon fixed coupon zero coupon variable coupon Tier 3 0-1 6.0 7.0 8.0 13.0 1-3 7.0 8.0 6.0 9.5 13.5 7.0 12.0 15.0 8.0 22.5 25.0 13.0 3-5 9.0 10.0 6.0 13.5 18.5 7.0 16.5 22.0 8.0 28.0 32.5 13.0 5-7 10.0 11.5 7.0 14.0 20.0 9.5 18.5 26.0 12.0 30.5 35.0 22.5 7-10 11.5 13.0 9.0 16.0 24.5 13.5 19.0 28.0 16.5 31.0 37.0 28.0 >10 13.0 16.0 10.0 19.0 29.5 14.0 19.5 30.0 18.5 31.5 38.0 30.5

   b) Table 3 is replaced by the following table:

   "Table 3
   Haircut rates applied to private claims with fixed or variable interest payments Valuation Method Credit Quality Residual Maturity (in years) * Fixed rate interest payment and valuation based on a theoretical price assigned by the NCB Variable rate interest payment and valuation based on a theoretical price assigned by the NCB Fixed rate interest payment and valuation based on the outstanding amount determined by the NCB Variable rate interest payment and valuation based on the outstanding amount determined by the NCB Tiers 1 and 2 (AAA to A-) 0-1 10.0 10.0 12.0 12.0 1-3 12.0 10.0 16.0 12.0 3-5 14.0 10.0 21.0 12.0 5-7 17.0 12.0 27.0 16.0 7-10 22.0 14.0 35.0 21.0 >10 30.0 17.0 45.0 27.0 Valuation Method Credit Quality Residual Maturity (in years) * Fixed rate interest payment and valuation based on a theoretical price assigned by the NCB Variable rate interest payment and valuation based on a theoretical price assigned by the NCB Fixed rate interest payment and valuation based on the outstanding amount determined by the NCB Variable rate interest payment and valuation based on the outstanding amount determined by the NCB Tier 3 (BBB+ to BBB-) 0-1 17.0 17.0 19.0 19.0 1-3 28.5 17.0 33.5 19.0 3-5 36.0 17.0 45.0 19.0 5-7 37.5 28.5 50.5 33.5 7-10 38.5 36.0 56.5 45.0 >10 40.0 37.5 63.0 50.5 (*) 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

Publication and entry into force

1. This Decision shall be published in the Official Publication Register of the Bank of France.
2. It shall enter into force on 16 April 2018, except for point c) of paragraph 3 of Article 1, which shall enter into force on 1 October 2018.
3. This Decision shall apply 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, 16 April 2018

The Governor of the Bank of France

François VILLEROY DE GALHAU