European Central Bank to Phase Out Temporary Easy Collateral Terms


The European Central Bank (ECB) plans to end easy collateral terms that commenced at the start of COVID-19 and tighten banks’ access to liquidity, the bank announced Thursday (March 24).

The pandemic collateral easing measures that were introduced nearly two years ago will be phased out in three steps between July 2022 and March 2024, the ECB said.

“Phasing out of measures will gradually restore Eurosystem’s pre-pandemic risk tolerance and avoid collateral availability cliff effects,” the central bank wrote.

The Governing Council, the chief in decision-making body of the ECB, said it considered the impact of the gradual phase out on the collateral availability of Europe’s financial ecosystem.

“This gradual phasing out allows ample time for the Eurosystem’s counterparties to adapt,” the ECB said.

The ECB’s action represents one more step towards bringing an end to support measures the bank implemented to cushion the economic impact of the coronavirus. The ECB has ended its money-printing scheme and has mentioned the possibility of an interest rate increase, the first in a decade.

Still, to support Greece, among the weakest members in the EU, the ECB said it will continue to allow financial institutions to post Greek government bonds as collateral, despite their junk-credit status. The decision can be reviewed at any time.

Last week, The Financial Times reported European regulators won’t ban bank dividends and share buybacks because of the Ukraine crisis. Instead, they will consider a more relaxed supervisory response.

See also: EU Rejects Complete Ban on Bank Payouts in Response to Ukraine Crisis

Eurozone lenders are looking at paying tens of billions of euros to shareholders this year, even some with big Russian operations.

But Andrea Enria, chair of the European Central Bank’s supervisory board, said he was not concerned by the overall ballpark of dividends and buybacks.