Worry for banks over ECB move

The ECB’s decision to suspend the minimum credit rating threshold for collateral eligibility in return for cheap funds could be damaging over the longer term if Irish banks sit on toxic assets rather than recognise losses.

The move by the ECB is a further attempt to ease the funding requirements for struggling sovereigns and banks across the regions. Moreover, the ECB announced that it would accept foreign denominated assets based in the eurozone as collateral.

“The Governing Council of the ECB has also decided that marketable debt instruments denominated in currencies other than the euro, namely the US dollar, the pound sterling and the Japanese yen, and issued and held in the euro area, are eligible to be used as collateral in Eurosystem credit operations until further notice. This measure reintroduces a similar decision that was applicable between Oct 2008 and Dec 2010, with appropriate valuation markdowns,” the ECB said.