Guideline (EU) 2016/65 of the European Central Bank of 18 November 2015 on the valuation haircuts applied in the implementation of the Eurosystem monetary policy framework (ECB/2015/35)

1 In accordance with Title VI of Part Four of Guideline (EU) 2015/510 (ECB/2014/60), marketable assets shall be subject to valuation haircuts, as defined in Article 2(97) of Guideline (EU) 2015/510 (ECB/2014/60), at the levels set forth in Table 2 in the Annex to this Guideline.

2 The valuation haircut for a specific asset depends on the following factors: (a) the haircut category to which the asset is allocated, as defined in Article 2; (b) the residual maturity of the asset; (c) the coupon structure of the asset; (d) the credit quality step to which the asset is allocated.

Eligible marketable assets shall be allocated to one of the five haircut categories, based on the type of issuer and/or the type of asset, as reflected in Table 1 in the Annex to this Guideline: (a) debt instruments issued by central governments, ECB debt certificates and debt certificates issued by NCBs prior to the date of adoption of the euro in their respective Member State whose currency is the euro are included in haircut category I; (b) debt instruments issued by local and regional government, entities classified as agencies by the Eurosystem, multilateral development banks and international organisations, as well as jumbo covered bonds, are included in haircut category II; (c) traditional covered bonds, other covered bonds and debt instruments issued by non-financial corporations are included in haircut category III; (d) unsecured debt instruments issued by credit institutions and by financial corporations other than credit institutions are included in haircut category IV; (e) asset-backed securities are included in haircut category V, regardless of the classification of the issuer.

1 The valuation haircuts for marketable assets allocated to haircut categories I to IV shall be determined based on: (a) the allocation of the specific asset to credit quality step 1, 2 or 3 as detailed in Table 2 in the Annex to this Guideline; (b) the residual maturity of the asset as detailed in paragraphs 3 and 4; (c) the coupon structure of the asset as detailed in paragraphs 3 and 4.

2 Marketable assets allocated to haircut category V shall be subject to a valuation haircut of 10 % regardless of their residual maturity or coupon structure.

3 For assets with zero or fixed coupons, the relevant maturity for the valuation haircut to be applied shall be the residual maturity of the asset.

4 For assets with floating coupons, the valuation haircut shall equal the valuation haircut applied to fixed coupon marketable assets with zero-to-one-year residual maturity, except in the following cases and without prejudice to paragraph 2. (a) Floating coupons with a resetting period of longer than one year shall be treated as fixed rate coupons and the relevant maturity for the valuation haircut to be applied shall be the residual maturity of the asset. (b) The relevant maturity for the valuation haircut to be applied to floating coupons that have a euro area inflation index as a reference rate shall be the residual maturity of the asset. (c) The valuation haircut applied to assets that have more than one type of coupon structure shall solely depend on the coupon structure in place during the remaining life of the asset and shall equal the highest haircut applicable to a marketable asset with the same residual maturity and credit quality step. Any type of coupon structure in place during the remaining life of the asset may be considered for this purpose.

In addition to the valuation haircuts laid down in Article 3 of this Guideline, the following additional valuation haircuts shall apply for specific types of marketable assets: (a) asset-backed securities, covered bonds and unsecured debt instruments issued by credit institutions that are theoretically valued in accordance with the rules contained in Article 134 of Guideline (EU) 2015/510 (ECB/2014/60) shall be subject to an additional valuation haircut in the form of a valuation markdown of 5 %; (b) own-use covered bonds shall be subject to an additional valuation haircut of (i) 8 % applied to the value of the debt instruments allocated to credit quality steps 1 and 2, and (ii) 12 % applied to the value of the debt instruments allocated to credit quality step 3; (c) for the purposes of paragraph (b), ‘own-use’ shall mean the submission or use by a counterparty of covered bonds that are issued or guaranteed by the counterparty itself or by any other entity with which that counterparty has close links as determined in accordance with Article 138 of Guideline (EU) 2015/510 (ECB/2014/60); (d) if the additional valuation haircut referred to in paragraph (b) cannot be applied with respect to a collateral management system of an NCB, triparty agent, or TARGET2-Securities for auto-collateralisation, the additional valuation haircut shall be applied in such systems or platform to the entire issuance value of the covered bonds that can be own used.

1 Individual credit claims with a fixed rate of interest payment and credit claims with a rate of interest payments linked to the inflation rate shall be subject to specific valuation haircuts determined according to the residual maturity, the credit quality step and the valuation methodology applied by the NCB, as laid down in Table 3 in the Annex to this Guideline.

2 Individual credit claims with a variable interest rate shall be subject to the valuation haircut applied to the credit claims with fixed interest rate classified as having zero-to-one-year residual maturity corresponding to the same credit quality step and the same valuation methodology applied by the NCB. An interest payment shall be treated as a variable rate payment if it is linked to a reference interest rate and the resetting period corresponding to this payment is no longer than one year. Interest payments for which the resetting period is longer than one year shall be treated as fixed rate payments, with the relevant maturity for the haircut being the residual maturity of the credit claim.

3 The valuation haircut applied to a credit claim with more than one type of interest payment shall depend only on the interest payments during the remaining life of the credit claim. If there is more than one type of interest payment during the remaining life of the credit claim, the remaining interest payments shall be treated as fixed-rate payments, with the relevant maturity for the haircut being the residual maturity of the credit claim.

4 For zero coupon credit claims the corresponding fixed interest credit claim valuation haircut shall apply.

5 Non-marketable retail mortgage-backed debt instruments shall be subject to a valuation haircut of 39,5 %.

6 Fixed-term deposits shall not be subject to valuation haircuts.

7 Each underlying credit claim included in the cover pool of a non-marketable debt instrument backed by eligible credit claims (hereinafter ‘DECC’) shall be subject to a valuation haircut applied at an individual level following the rules set out in paragraphs 1 to 4 above. The aggregate value of the underlying credit claims included in the cover pool after the application of valuation haircuts shall, at all times, remain equal to or above the value of the principal amount of the DECC that is outstanding. If the aggregate value falls below the threshold referred to in the previous sentence, the DECC shall be valued at zero.

1 This Guideline shall take effect on the day of its notification to the national central banks of the Member States whose currency is the euro.

2 The national central banks of the Member States whose currency is the euro shall take the necessary measures to comply with this Guideline and apply them from 25 January 2016.They shall notify the ECB of the texts and means relating to those measures by 5 January 2016 at the latest.

This Guideline is addressed to the national central banks of the Member States whose currency is the euro.