Credit operations risk control framework reviewed by ECB

Following the ECB Council’s decision in July 2022 to assess climate change risks when reviewing haircuts, from this examination onwards, the review also seeks to ensure the robustness of haircuts to climate-related financial risks.

The current assessment did not find empirical proof that necessitates revisions to the haircut schedule based on climate change considerations. The updated haircut schedule is already adequately protective against climate-related financial risks.On 24 March 2022, the Governing Council decided to phase-out the pandemic collateral easing measures gradually. The ECB also communicated that it would enforce a new valuation haircut agenda for credit operations based on its pre-pandemic risk tolerance levels. Following the assessment, the ECB decided on several measures to enhance the overall consistency of the risk control framework, which will come into effect on 29 June 2023. 

The measures include the following:

• Based on an updated risk assessment, increase the valuation haircuts for marketable and non-marketable assets to the pre-pandemic risk tolerance level.
• Assign all secured bonds and multi-cédulas to haircut category II.
• Split the most extended residual maturity type in the existing haircut program into three new categories.
• Substitute the current flat 5% theoretical valuation discount with a graduated discount schedule based on maturity.
• Divide the most extended residual maturity category in the existing haircut schedule into three parts.

The amendments to Guidelines ECB/2014/60, ECB/2015/35, and ECB/2014/31, mirroring the above measures, will be made public on the ECB’s website. They will be published on the homepage of the ECB and in the Official Journal of the European Union in April 2023.