Following recent market speculation on the tightening of the availability of the ECB liquidity schemes to participants, on September 4 2008 the European Central Bank (ECB) issued a press release announcing changes to its risk control measures for assets deposited by counterparties as collateral for access to (a) the open market operations, (b) marginal lending facility and (c) intra-day credit payment system, offered by the ECB.
This official announcement is the first action the ECB has taken to reform its collateral rules since the beginning of the credit crisis in August 2007. The changes are a clear tightening of the ECB's collateral rules in areas where it believes that its liquidity schemes have been exploited by participants (counterparties) and now used as a core-source of funding.
ECB funding has been employed by participants not only to plug holes in balance sheets but also to originate new business. With the ECB...