Posted by Sébastien Praicheux and Célestine Barthout on 7 May 2020
Tagged to COVID-19, Eurosystem, Regulation

In line with the European Central Bank’s (ECB) decisions to temporarily loosen Eurosystem collateral rules to support bank funding in the context of the spread of the COVID-19 pandemic (read our FinBrief here), the Governor of the French central bank (the Banque de France) issued a new decision No. 2020‑02 dated 20 April 2020 on the refinancing operations of the Banque de France and the eligibility of collateral and repealing and replacing Decision No. 2016-07 of 30 December 2016 (read the decision here). This new decision aims at implementing the ECB's monetary policy guidelines and therefore amends the French regime with regard notably to the eligibility of collateral and haircuts.

On April 2020, the ECB adopted additional measures aiming essentially at broadening the scope of eligible assets accepted as collateral for Eurosystem refinancing operations: as a consequence, the Banque de France adopted new measures transposing the ECB monetary policy guidelines at national level, on 8 April and the on 20 April 2020.

Since 8 April 2020, the threshold for mobilising private claims has been lowered from EUR25,000 to EUR 0 for domestic use, whereas the threshold for cross-border mobilisation was maintained at EUR500,000. Additionally, the concentration limit on unsecured bank securities was increased from 2.5% to 10% of the collateral deposited.

As a second step, the Banque de France not only decided, since 20 April 2020, to lower the haircut grids for all eligible collateral by 20%, but also to modify the eligibility criteria for additional private claims as collateral for refinancing operations to accept the two following types of loans:

  • loans in euros or US dollars to non-financial companies within the meaning of Regulation (EU) n° 549/2013 with a one-year probability of default of up to 1.5% (instead of 1% previously). The requirements under which the residual maturity of these loans must as a principle exceed one month remains unchanged, although the residual maturity, when the probability of default is between 1% and 1.5% (against 0.40% and 1% previously), should not exceed 30 years as from 20 April 2020, against 5 years before;
  • loans to companies benefiting from the French State guarantee, granted under the plan set up by the French government to help companies overcome the difficulties caused by the COVID‑19 crisis.

Just like the ECB, the Banque de France may implement additional measures in order to help the economy face the crisis arising from the COVID-19 pandemic.

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