Book contents
- Frontmatter
- Contents
- List of Figures
- List of Tables
- List of Exhibits
- List of Examples
- Preface
- Acknowledgments
- 1 Background and Motivation
- 2 Collateral Frameworks: Overview
- 3 Monetary Policy Implementation in the Euro Area over Time
- 4 Evidence on the Production and Usage of Collateral
- 5 Haircuts
- 6 Ratings and Guarantees
- 7 Market and Theoretical Prices
- 8 Collateral “Own Use”
- 9 Non-regulated Markets, Unsecured Bank Debt, and LTRO Uptake
- 10 Market Discipline
- 11 Bailing Out the Euro
- 12 The Endgame of the Euro Crisis
- 13 Restoring Credibility
- 14 The Problem with Collateral
- 15 Concluding Remarks
- Appendix: Haircut and Rating Rules Updates
- References
- Index
5 - Haircuts
Published online by Cambridge University Press: 06 January 2017
- Frontmatter
- Contents
- List of Figures
- List of Tables
- List of Exhibits
- List of Examples
- Preface
- Acknowledgments
- 1 Background and Motivation
- 2 Collateral Frameworks: Overview
- 3 Monetary Policy Implementation in the Euro Area over Time
- 4 Evidence on the Production and Usage of Collateral
- 5 Haircuts
- 6 Ratings and Guarantees
- 7 Market and Theoretical Prices
- 8 Collateral “Own Use”
- 9 Non-regulated Markets, Unsecured Bank Debt, and LTRO Uptake
- 10 Market Discipline
- 11 Bailing Out the Euro
- 12 The Endgame of the Euro Crisis
- 13 Restoring Credibility
- 14 The Problem with Collateral
- 15 Concluding Remarks
- Appendix: Haircut and Rating Rules Updates
- References
- Index
Summary
This chapter documents in detail the haircut policy of the Eurosystem and how it has evolved over time. A detailed description of haircuts necessarily also provides further information on the large range of collateral that banks can use to obtain credit from the Eurosystem and how eligibility rules have been relaxed over the course of the financial crisis. The chapter ends by presenting evidence on the Eurosystem's haircuts across different types of collateral versus those applied in two widely used and comparable central counterparty (CCP) contracts.
DOCUMENTATION AND OVERVIEW
The ECB provides a list of documents that describe the collateral framework, including the rules for collateral eligibility and haircuts, on a dedicated webpage. These documents are also published in the Official Journal of the European Union and represent legally binding acts or decisions. In addition to the publication date itself, each of these documents shows the date when the act, or decision, was legally adopted. These “adopted on,” or formal approval, dates should not be confused with press-release dates; the ECB sometimes communicates decisions by the Governing Council through press releases before they become legal acts, if at all. When describing the haircut rules in this chapter, and the ratings rules in the next, I have relied on the contents of the legal documentation provided by the ECB on its webpage and published in the Official Journal.
The earliest dated collateral framework document posted on the ECB's webpage is the Guideline of the European Central Bank of 31 August 2000 on monetary policy instruments and procedures of the Eurosystem (ECB 2000/7). The preamble to this document establishes that it is produced under the “Treaty establishing the European Community”:
The achievement of a single monetary policy entails the need to define the instruments to be used by the national central banks of Member States that have adopted the euro… The ECB is vested with the authority to establish the necessary Guidelines for the implementation of the single monetary policy and the NCBs [National Central Banks] have an obligation to act in accordance with such Guidelines… ECB Guidelines form an integral part of Community law.
ECB (2000/7, p. 1)- Type
- Chapter
- Information
- Collateral FrameworksThe Open Secret of Central Banks, pp. 59 - 93Publisher: Cambridge University PressPrint publication year: 2016