Regulation of the Central Bank of Luxembourg 2022 No 32 of 7 July 2022 amending the Regulation of the Central Bank of Luxembourg 2014 No 18 of 21 August 2014 implementing ECB/2014/31 on temporary additional measures concerning Eurosystem refinancing operations and collateral eligibility

BANQUE CENTRALE DU LUXEMBOURG
Regulation of the Central Bank of Luxembourg 2022/ No 32 of 7 July 2022 amending the Regulation of the Central Bank of Luxembourg 2014/ No 18 of 21 August 2014 implementing ECB/2014/31 on temporary additional measures concerning Eurosystem refinancing operations and collateral eligibility

The Management 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 Statutes 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) Under Article 18.1 of the Statutes of the European System of Central Banks and of the European Central Bank, the European Central Bank (ECB) and the national central banks of Member States whose currency is the euro (hereinafter 'NCBs') may conduct credit operations with credit institutions and other market participants on the basis of appropriate collateral for the loans, in order to achieve the objectives of the European System of Central Banks. 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) Guideline (EU) 2015/510.

(2) It is necessary to further clarify the treatment, for eligibility purposes, of reference interest rates for marketable assets.

(3) The Governing Council has conducted a comprehensive review of the temporary collateral easing measures adopted since 2020, in response to exceptional economic and financial circumstances related to the spread of coronavirus disease 2019 (COVID-19). These measures included the temporary reduction of haircuts; the maintenance of eligibility of assets, as well as issuers and guarantors of these assets, which met the Eurosystem minimum credit quality requirements on 7 April 2020, but whose rating was subsequently lowered; and the authorization for NCBs to accept as eligible collateral sovereign debt securities issued by the central administration of the Hellenic Republic that do not meet the credit quality requirements. This review took into account a) the fact that Eurosystem counterparties participating in targeted longer-term refinancing operations conducted under European Central Bank (ECB/2019/21) Decision (EU) 2019/1311 should be able to continue to mobilize sufficient eligible collateral for these operations, b) the impact on collateral for Eurosystem counterparties related to each of these measures; c) risk-related considerations related to each of these measures; d) other policy and market considerations.

(4) In this context, the Governing Council decided on 23 March 2022, inter alia, to phase out the aforementioned haircut reduction in two steps, the first starting on 8 July 2022, in order to strengthen risk coverage and the effectiveness of the Eurosystem's risk management.

(5) It also decided not to admit, from 8 July 2022, marketable assets, nor the issuers and guarantors of these assets, which met the Eurosystem minimum credit quality requirements on 7 April 2020 but whose rating was subsequently lowered by credit rating agencies accepted by the Eurosystem to a credit quality level below the Eurosystem minimum requirement, in order to return to a consistent treatment of issuers, marketable assets and guarantors within the Eurosystem collateral framework, regardless of the timeline of action by rating agencies.

(6) The Governing Council further decided to continue to authorize NCBs to accept as eligible collateral marketable debt securities issued by the central administration of the Hellenic Republic that do not meet the Eurosystem credit quality requirements but meet all other eligibility criteria applicable to marketable assets, at least as long as reinvestments in these securities continue under the Pandemic Emergency Purchase Programme (PEPP), subject to a specific haircut table. This measure, which will be temporary, is based on the following additional considerations: a) the need to continue to avoid fragmentation of access to Eurosystem monetary policy operations, which would harm the proper functioning of the monetary policy transmission mechanism to the Greek economy while it has not yet recovered from the consequences of the pandemic; b) the commitments made by the Hellenic Republic under enhanced surveillance, conducted in accordance with Regulation (EU) No 472/2013 of the European Parliament and of the Council, and the monitoring of its implementation by Union institutions; c) the fact that medium-term debt relief measures concerning the Hellenic Republic, put in place through the European Stability Mechanism and the European Stability Mechanism, depend on the continued implementation of these commitments; d) information on the economic and financial situation of the Hellenic Republic available to the ECB due to its participation in the enhanced surveillance framework; e) the fact that even after the end of enhanced surveillance: i) the economic, budgetary and financial situation of the Hellenic Republic will be regularly reviewed under post-programme surveillance in accordance with Article 14 of Regulation (EU) No 472/2013 and the European Stability Mechanism's quarterly early warning system, ii) debt relief measures for the Hellenic Republic will continue to be linked to this post-programme surveillance and iii) payments to the Hellenic Republic provided for under the Recovery and Resilience Facility in accordance with Regulation (EU) 2021/241 of the European Parliament and of the Council depend on the success of milestones and targets agreed in accordance with Article 24 of that Regulation; f) the periodic assessments of sovereign debt sustainability that will be carried out by the European Stability Mechanism, the European Commission and the ECB; g) the fact that the ECB will continue to have access to information concerning the economic and financial situation of the Hellenic Republic and even after the end of enhanced surveillance, through the mechanisms set out in points e) i) and e) iii) above.

(7) Since Guideline ECB/2014/31 has been amended accordingly by Guideline ECB/2022/19, it is appropriate to implement the new measures by amending the Regulation of the Central Bank of Luxembourg 2014/ No 18 of 21 August 2014 implementing Guideline ECB/2014/31 on temporary additional measures concerning Eurosystem refinancing operations and collateral eligibility accordingly, as amended.

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. In Article 7, paragraph 3 is replaced by the following text:
   '3. The marketable debt securities described in paragraph 1, coupled with coupons indexed on a single money market rate provided by a central bank or an administrator in accordance with Article 36 of Regulation (EU) 2016/1011 of the European Parliament and of the Council (), or on a money market rate listed as a third-country reference index in the register referred to in Article 36 of that Regulation, in the currency in which the securities are denominated, or indexed on an inflation index not containing complex structures such as those where coupons are defined as in the case of exotic options ('discrete range', 'range accrual', 'ratchet'), or other complex structures, for the country concerned, also constitute eligible collateral for Eurosystem monetary policy operations. () Regulation (EU) 2016/1011 of the European Parliament and of the Council of 8 June 2016 on indices used as reference values in the context of financial instruments and financial contracts or to measure the performance of investment funds and amending Directives 2008/48/EC and 2014/17/EU and Regulation (EU) No 596/2014 (OJ L 171 of 29.6.2016, p. 1).';
2. In Article 8a, paragraph 3 is deleted;
3. In Article 8b, point b), paragraph 12 is replaced by the following text:
   '12. The provisions of this Article shall remain applicable until 7 July 2022.';
4. Annex II bis is replaced by Annex I of this Regulation;
5. Annex II ter is replaced by Annex II of this Regulation.

Article 2. Entry into force
This Regulation shall enter into force on the day following 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 Management

ANNEX I
'Annex II bis
Haircut rates (in %) applied to eligible asset-backed securities under Article 3, paragraph 2, of this Guideline Weighted average life (*) Haircut [0,1) 5.4 [1,3) 8.1 [3,5) 11.7 [5,7) 13.5 [7,10) 16.2 [10,∞) 27

• That is, [0,1) weighted average life less than one year, [1,3) weighted average life equal to or greater than one year but less than three years, etc.';

ANNEX II
'Annex II ter
Haircut rates (in %) applied to eligible marketable assets referred to in Article 8a Credit quality Residual maturity (in years) (*) Category I Fixed coupon Zero coupon Variable coupon Tier 4 [0,1) 7.2 [1,3) 10.8 11.7 10.8 [3,5) 12.6 13.5 12.6 [5,7) 14.0 15.3 14.0 [7,10) 14.9 16.2 14.9 [10,∞) 16.2 18.9 16.2 Tier 5 [0,1) 9 [1,3) 12.6 13.5 12.6 [3,5) 14.9 15.8 14.9 [5,7) 16.2 17.6 16.2 [7,10) 17.1 18.5 17.1 [10,∞) 18.5 21.2 18.5

• 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.'.