The European Central Bank will tighten its rating requirements for banks using asset-backed securities (ABS) as security in its lending operations, it said today.
From March 1st, 2010, new ABSs will require at least two ratings for newly-issued bonds to be eligible as collateral, the ECB said in a statement.
"The Eurosystem will require at least two ratings from an accepted external credit assessment institution for all ABSs issued as of March 1st, 2010," the ECB said in a statement.
"In determining the eligibility of these ABSs, the Eurosystem will apply the 'second-best' rule, meaning that not only the best, but also the second-best -available rating must comply with the minimum threshold applicable to ABSs."
The ECB had previously required one rating at the AAA/Aaa level. From March 2011, all ABSs have to be backed by two AAA/Aaa ratings, including the ones issued before the new rule comes into effect.
"The Governing Council has deemed it necessary to introduce the above amendments to ensure that the Eurosystem's requirement of high credit standards for all eligible collateral is met," the ECB said.
"In addition, the changes, which reflect recent market developments, aim to make a further contribution to restoring the proper functioning of the ABS market."
Reuters