Law360 is providing free access to its coronavirus coverage to make sure all members of the legal community have accurate information in this time of uncertainty and change. Use the form below to sign up for any of our weekly newsletters. Signing up for any of our section newsletters will opt you in to the weekly Coronavirus briefing.
Sign up for our Corporate Crime & Compliance UK newsletter
You must correct or enter the following before you can sign up:
Thank You!
Law360, London (April 8, 2020, 1:23 PM BST) -- The European Central Bank said it has adopted "unprecedented" measures to make it easier for eurozone banks to borrow money during the coronavirus crisis by easing the requirements for what they can put down as collateral.
The central bank's governing council adopted a package of temporary measures on Tuesday that will lower the threshold of what counts as collateral when banks in the European Union borrow money. The steps are designed to ensure that banks have sufficient cash to lend to households and businesses to keep the economy working during the COVID-19 outbreak.
"The measures collectively support the provision of bank lending, especially by easing the conditions at which credit claims are accepted as collateral," the ECB said in a statement.
The measures allow lenders to use more corporate and household loans, known as credit claims, as collateral when they borrow from their national central banks.
"This includes the possibility to accept loans with lower credit quality, loans to other types of debtors not accepted in the ECB's general framework and foreign-currency loans," the ECB said.
Lenders can also use loans that they have made to governments, small and midsized enterprises and self-employed individuals as collateral, the Eurozone central bank said. The loans are usually seen by central banks as being of a lower credit quality.
The ECB said that it will also "temporarily increase its risk tolerance level" by reducing collateral valuation "haircuts" by 20%. Haircuts reflect how much of an asset can be used as collateral, so such a reduction means an asset has a higher value.
The EU authority said the measures are temporary and will be available to banks only during the pandemic. The ECB will re-assess the package before the end of 2020.
The ECB has already relaxed some capital requirements for EU banks to encourage lending and offset the impact of the coronavirus crisis on the economy. The central bank also provided banks and borrowers with more access to credit if cash circulating in the financial system runs short.
--Editing by Ed Harris.
For a reprint of this article, please contact reprints@law360.com.
