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Role of sovereign bond credit ratings in the collateral framework of the Eurosystem

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Dear European Central Bank,

Under the right of access to documents in the EU treaties, as developed in Regulation 1049/2001, I am requesting documents which contain the following information:

In the last quarter of 2005, the Eurosystem decided to no longer accept sovereign bonds of euro area member states as eligible collateral in its refinancing operations if not at least one of the ‘big three’ public rating agencies – Fitch, Moody’s and S&P – rates a country at A-/A3 or better.

Asked about these changes in collateral rules at a press conference Q&A session on November 1, 2005 (“You have just changed the rules for collateral. A-minus and better-rated government bonds will be accepted in repos. Why have you shifted so much power to the private agen-cies?”), then-ECB President Jean-Claude Trichet replied that “it is not a new decision. It is a decision that was implemented when the euro was first introduced. And the market people – the specialists observing what we were doing, looking at our website – could see that there was no change. It was what we had done since the very beginning; it was embedded in our policy. It has been made more visible, but there has been no change. We are bound to treat private paper and public paper in the same fashion. And the A-minus threshold that you mentioned, again, is something which has been state of the art since the very beginning.”

It is true that up to that point, the Eurosystem had not accepted any sovereign bonds rated below the A-/A3 threshold – because until late 2005 all of the 12 euro-area members had at least an A/A2 rating. Therefore, the ECB’s clarification of collateral rules eliminated any degree of ‘constructive ambiguity’, which amounts to a substantial policy change.

In his farewell speech (“Completing the Odyssean journey of the European monetary union”), Vítor Constâncio moreover indicates disagreement between the members of the Governing Council regarding the 2005 decision: “Already in 2005, the ECB seemed to confirm a strict view on national public debt, when it changed its policy of accepting all such debt as collateral in regular monetary operations, by introducing a minimum rating by rating agencies, below which sovereign bonds would no longer be acceptable. It would have been preferable to exert its own assessment of credit risk and use a system of differentiated haircuts.”

Against this background, I kindly ask you to release documents that contain the following in-formation about the decision, announced by President Trichet in November 2005, to explicitly communicate minimum rating requirements for government bonds pledged as collateral:

(a) information regarding the member(s) of the Eurosystem, or of the Executive Board, that brought the idea of stricter rating requirements on the agenda;
(b) background materials informing the Governing Council’s decision (e.g. any Eurosystem Committee memoranda or papers);
(c) the content of the deliberations within the ECB that motivated the 2005 decision;
(d) documentation of internal disagreements or diverging views regarding this decision between Eurosystem members;
(e) the exact date of this decision.

In addition, could you please specify whether, at any point since 2005, the Eurosystem has con-sidered reversing that decision by removing explicit rating thresholds for government bonds from its collateral framework. Such a revision would follow the lead of the Bank of England, which removed most references to credit ratings, in particular for sovereign securities, in its published framework in 2011 (BIS 2013: Central bank collateral frameworks and practices. Basel, p. 10-11). If this is the case, I kindly ask you to provide copies of any memoranda or minutes documenting internal debates on adaptions to or a complete abolition of the 2005 rating decision.

In case there is need for further clarifications, please do not hesitate to contact me.

Thank you in advance for your cooperation!

Yours faithfully,

Tobias Pfeffer

Access to documents,

Dear Mr Pfeffer,

 

The ECB confirms receipt on 4 July 2018 of your request for access to ECB
documents on the above-mentioned subject. Please note that access to ECB
documents is governed by Decision ECB/2004/3 (the unofficial consolidated
version of this ECB Decision is available at
[1]http://www.ecb.europa.eu/ecb/legal/pdf/0...).
Pursuant to Art. 7.1 of this Decision, your application shall be handled
within 20 working days (excluding ECB holidays) from the date of its
receipt.

 

We note that the scope of your application is particularly broad. In line
with Article 6.3 “in the event of an application relating to a very long
document or to a very large number of documents (e.g. covering a
particularly long period of time), the ECB may confer with the applicant
informally, with a view to finding a fair solution”.

In order to allow the ECB to assess your request within the time limits
foreseen in Decision ECB/2004/3, the ECB will break down your request into
smaller batches. We would therefore be grateful if you could identify
which items from your list you would wish to be dealt with as a priority.

 

Following receipt of your specification, the ECB will proceed with the
assessment of the first part of your request and confirm the timeline for
the ECB reply.

Yours sincerely,

 

Compliance and Governance Office

DG Secretariat

European Central Bank

Sonnemannstrasse 20

60314 Frankfurt am Main

[2][email address]     

[3][email address]     

 

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Dear European Central Bank,

Thank you for the swift response.

All questions are closely related, for practical reasons, however, the request could be divided into two parts: the first one concerns the 2005 decision (items a to e), while the second part focusses on developments since 2005. Please do your best to meet all the request sections equally.

Yours sincerely,

Tobias Pfeffer

Access to documents,

Dear Mr Pfeffer,

Thank you for your clarification. Regarding your proposal to divide your request into two parts, we would offer to handle your application in successive batches. Once we have finished the treatment of the first batch (items a) to e)) we will register the second one and process it accordingly.

Yours sincerely,

Compliance and Governance Office
DG Secretariat
European Central Bank
Sonnemannstrasse 20
60314 Frankfurt am Main
[email address]
[email address]

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Dear European Central Bank,

your suggestion to handle the application in two successive batches is fine for me.

Yours sincerely,

Tobias Pfeffer

Access to documents,

Dear Mr Pfeffer,

We should like to inform you that due to internal deliberations and increased workload, we have to invoke Article 7.3 of Decision ECB/2004/3 on public access to ECB documents and extend the time limit provided to reply to your request by an additional 20 working days, starting from 1 August 2018.

Please rest assured, however, that we are currently assessing your request and will do our best to respond to you within the new deadline.

Yours sincerely,

Compliance and Governance Office
DG Secretariat
European Central Bank
Sonnemannstrasse 20
60314 Frankfurt am Main
[email address]
[email address]

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Access to documents,

Dear Mr Pfeffer,

We refer to your request for documents reflecting changes in collateral rules.

As was explained by then ECB President Jean-Claude Trichet at the press conference Q&A session on December 1, 2005, the decision on collateral was ‘implemented when the euro was first introduced’. We have identified Annex 6 (“The Minimum Credit Rating Standard for Eligible Assets”) of the Manual on Internal ESCB Procedures for the Monetary Policy Framework in Stage Three of EMU confirming this, as adopted by the ECB Governing Council on 11 September 1998.

As was further explained by Mr Trichet at the same press conference, in response to calls by economists’ community to practice haircuts combined with the Stability and Growth Pact implementation, the ECB decided it was not appropriate to invent a new sanction that would apply for non-compliance with the Stability and Growth Pact via its collateral mechanism, while taking the government paper at its market value. Such decision, confirming that (a) the collateral and risk control framework for Eurosystem monetary policy and payment system operations would not include compliance with the Stability and Growth Pact as an additional criterion for eligibility or for additional risk management measures; and (b) that the single A credit rating threshold applied to Eurosystem collateral, was adopted by the ECB Governing Council on 3 February 2005.

Would you consider specifying your request in order to access Annex 6 (“The Minimum Credit Rating Standard for Eligible Assets”) of the Manual on Internal ESCB Procedures for the Monetary Policy Framework in Stage Three of EMU confirming this, as adopted by the ECB Governing Council on 11 September 1998 and the decision of the ECB Governing Council of 3 February 2005?

Yours sincerely,

Compliance and Governance Office
DG Secretariat
European Central Bank
Sonnemannstrasse 20
60314 Frankfurt am Main
[email address]
[email address]

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Dear European Central Bank,

thanks for your response.

Referring to your request for clarification, under the right of access to documents in the EU treaties, as developed in Regulation 1049/2001, I kindly ask you to disclose the following two documents:

(a) Annex 6 (“The Minimum Credit Rating Standard for Eligible Assets”) of the Manual on Internal ESCB Procedures for the Monetary Policy Framework in Stage Three of EMU, as adopted by the ECB Governing Council on 11 September 1998.
(b) The document covering the decision of the ECB Governing Council of 3 February 2005.

Thank you in advance for your cooperation!

Yours sincerely,
Tobias Pfeffer

Access to documents,

Dear Mr Pfeffer,

The ECB acknowledges receipt on 2 November 2018 of your email dated 31 October 2018 specifying the scope of your request of 3 July 2018.

We confirm that your application has been registered as a public access request and will be processed taking into account the below information, in line with Decision ECB/2004/3 https://www.ecb.europa.eu/ecb/legal/pdf/... (unofficial consolidated version), which foresees a deadline for response of 20 working days excluding ECB holidays.

Yours sincerely,

Compliance and Governance Office
DG Secretariat
European Central Bank
Sonnemannstrasse 20
60314 Frankfurt am Main
[email address]
[email address]

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Access to documents,

Dear Mr Pfeffer,
 
Please note that due to internal procedural steps, we have to invoke
Article 7.3 of [1]Decision ECB/2004/3 on public access to ECB documents
and extend the time limit provided to reply to your request by an
additional 20 working days (excluding ECB holidays).
 
Please rest assured, however, that we are currently assessing your request
and will do our best to respond to you within this new deadline.
 
Yours sincerely,
 
Compliance and Governance Office
DG Secretariat
European Central Bank
Sonnemannstrasse 20
60314 Frankfurt am Main
[2][email address]   
[3][email address]    
_____________________________________________
From: Access to documents
Sent: 02 November 2018 11:59
To: Tobias Pfeffer
Cc: Access to documents; [email address]
Subject: Acknowledgement of receipt of your specification of your request
for access to ECB documents - Role of sovereign bond credit ratings in the
collateral framework of the Eurosystem
 
 
Dear Mr Pfeffer,

The ECB acknowledges receipt on 2 November 2018 of your email dated 31
October 2018 specifying the scope of your request of 3 July 2018.

We confirm that your application has been registered as a public access
request and will be processed taking into account the below information,
in line with Decision ECB/2004/3
[4]https://www.ecb.europa.eu/ecb/legal/pdf/...
(unofficial consolidated version), which foresees a deadline for response
of 20 working days excluding ECB holidays.

Yours sincerely,

Compliance and Governance Office
DG Secretariat
European Central Bank
Sonnemannstrasse 20
60314 Frankfurt am Main
[email address]  
[email address]   

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Access to documents,

3 Attachments

Dear Mr Pfeffer,

Please find enclosed the ECB’s reply (letter and two attachments) to your request for public access to ECB documents on the above-mentioned subject.

Yours sincerely,

Compliance and Governance Office
DG Secretariat
European Central Bank
Sonnemannstrasse 20
60314 Frankfurt am Main
[email address]
[email address]
_____________________________________________
From: Access to documents
Sent: 22 November 2018 15:48
To: Tobias Pfeffer
Cc: Access to documents; [email address]
Subject: Notification of extended deadline to reply to your request for access to ECB documents - Role of sovereign bond credit ratings in the collateral framework of the Eurosystem

Dear Mr Pfeffer,

Please note that due to internal procedural steps, we have to invoke Article 7.3 of Decision ECB/2004/3 on public access to ECB documents and extend the time limit provided to reply to your request by an additional 20 working days (excluding ECB holidays).

Please rest assured, however, that we are currently assessing your request and will do our best to respond to you within this new deadline.

Yours sincerely,

Compliance and Governance Office
DG Secretariat
European Central Bank
Sonnemannstrasse 20
60314 Frankfurt am Main
[email address]
[email address]
_____________________________________________
From: Access to documents
Sent: 02 November 2018 11:59
To: Tobias Pfeffer
Cc: Access to documents; [email address]
Subject: Acknowledgement of receipt of your specification of your request for access to ECB documents - Role of sovereign bond credit ratings in the collateral framework of the Eurosystem

Dear Mr Pfeffer,

The ECB acknowledges receipt on 2 November 2018 of your email dated 31 October 2018 specifying the scope of your request of 3 July 2018.

We confirm that your application has been registered as a public access request and will be processed taking into account the below information, in line with Decision ECB/2004/3 https://www.ecb.europa.eu/ecb/legal/pdf/... (unofficial consolidated version), which foresees a deadline for response of 20 working days excluding ECB holidays.

Yours sincerely,

Compliance and Governance Office
DG Secretariat
European Central Bank
Sonnemannstrasse 20
60314 Frankfurt am Main
[email address]
[email address]

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Wir sind nicht sicher, ob die letzte Antwort auf diese Anfrage Informationen enthält – »falls Sie Tobias Pfeffer sind, bitte melden Sich an und lassen es uns wissen.