The ECB has officially announced new temporary measures to reduce the impact of possible rating downgrades.
The current economic and financial crisis could presumably cause rating downgrades, especially of the public debt of some countries, and this could cause problems to the new quantitative easing taking place from April 7th, 2020 until September 2021.
The securities and bonds that the ECB buys on secondary markets must have a certain minimum rating level, although due the downgrade some of them could have been excluded from the QE. The new measures serve to prevent this from happening.
With the current decision, the ECB also accepts as collateral assets that are rated below the minimum credit quality requirements, although a haircut will be applied to them.
The Central Bank is also committed to taking further measures, if necessary, to continue to ensure the smooth implementation of its monetary policy in all euro area jurisdictions.
The specific aim of these measures is to ensure that banks have sufficient assets to be able to use as collateral to participate in liquidity-providing operations, and thus to continue to provide funding to the euro area economy.
With this in mind, the new measures serve to ensure the continued availability of collateral, which is essential for banks providing financing to businesses and households in these times.
In particular, assets and issuers that have met the minimum credit quality requirements until April 7th, 2020, i.e. BBB- ratings, will continue to be eligible even in the event of a downgrade of the rating, provided that this remains at or above Credit Quality Step 5 (CQS5), equivalent to a BB rating.
As a result, assets and issuers that were at investment grade at the time the Governing Council adopted the first round of measures against this crisis will remain eligible even if their rating falls two levels below the current minimum requirements.