–Adds quotes from Trichet and additional details of collateral changes

FRANKFURT (MNI} – The European Central Bank will keep the minimum
credit threshold for marketable and non-marketable assets in the
Eurosystem collateral framework at investment-grade level (BBB-/Baa3)
beyond the end of 2010, except in the case of asset-backed securities
(ABS), President Jean-Claude Trichet confirmed Thursday.

“In addition, the Governing Council has decided to apply, as of 1
January 2011, a schedule of graduated valuation haircuts to the assets
rated in the BBB+ to BBB- range,” Trichet said during his introductory
statement at today’s press conference.

The changes will replace the ECB’s current single add-on haircut of
5% for ratings below A-, Trichet said. The ECB assured that the “new
haircuts will not imply an undue decrease in the collateral available to
counterparties.”

Trichet said that the new system will mean no change on paper rated
above BBB, meaning that the first haircut — at BBB+ level — will match
the current 5% add-on.

This would imply there would be no rating-based haircut applied to
Greek government bonds, unless it is downgraded at least two notches by
Moody’s between now and the end of the year. Currently, Moody’s assigns
Greek sovereign debt a rating of A (A2), so it is not subject to the
current 5% haircut, which kicks in below A- (A3) — as would the new
graduated haircut system. The other two major rating agencies, Standard
& Poors and Moody’s, currently assign Greek debt ratings of BBB+ (Baa1).

“The new haircuts will be duly graduated according to differences
across maturities, liquidity categories and the credit quality of the
assets concerned,” the ECB said in a statement. Under the current
system, the size of haircuts on paper rated A- and above are based
mainly on maturities and liquidity.

Under the new system, haircuts will be at least as high as the
haircut currently applied, the ECB statement said.

Pressed by reporters asserting that the ECB had abandoned a pledge
to revert to the stricter pre-crisis collateral rules in order to assist
Greece, Trichet sought to portray the move as one of conscientious
fiduciary responsibility.

He said the changes essentially meant that the ECB had decided to
maintain the current framework, “with an appreciation of the risks which
are more pertinent than the full-fledged 5% [add-on haircut] that we
have today. It is an improvement in risk assessment by us.”

“We did not say that this was for any particular country or
instrument,” Trichet asserted.

Trichet also revealed that the ECB has decided, as of the end of
this year, to eliminate the collateral eligibility of foreign-currency
denominated debt instruments, subordinated marketable debt, debt
instruments issued by credit institutions that are traded on accepted
non-regulated markets.

All three were added to the collateral basket in an attempt to ease
bank financing as the financial crisis shook global markets towards the
end of 2008.

The specific schedule of haircuts will be published in July 2010.

–Frankfurt Bureau tel.: +49-69-720 142, email: frankfurt@marketnews.com

[TOPICS: M$X$$$,MT$$$$,M$$EC$,MGX$$$]