Euro

ECB to accept sustainability-linked bonds as collateral

Wednesday, September 23, 2020 - 12:07am

PRESS RELEASE

Key Points: 
  • PRESS RELEASE

    ECB to accept sustainability-linked bonds as collateral

    22 September 2020

    The European Central Bank (ECB) has decided that bonds with coupon structures linked to certain sustainability performance targets will become eligible as collateral for Eurosystem credit operations and also for Eurosystem outright purchases for monetary policy purposes, provided they comply with all other eligibility criteria.

  • This further broadens the universe of Eurosystem-eligible marketable assets and signals the Eurosystems support for innovation in the area of sustainable finance.
  • Non-marketable assets with comparable coupon structures are already eligible.
  • The decision aligns the treatment of marketable and non-marketable collateral assets with such coupon structures.

ECB to accept sustainability-linked bonds as collateral

Wednesday, September 23, 2020 - 12:05am

PRESS RELEASE

Key Points: 
  • PRESS RELEASE

    ECB to accept sustainability-linked bonds as collateral

    22 September 2020

    The European Central Bank (ECB) has decided that bonds with coupon structures linked to certain sustainability performance targets will become eligible as collateral for Eurosystem credit operations and also for Eurosystem outright purchases for monetary policy purposes, provided they comply with all other eligibility criteria.

  • This further broadens the universe of Eurosystem-eligible marketable assets and signals the Eurosystems support for innovation in the area of sustainable finance.
  • Non-marketable assets with comparable coupon structures are already eligible.
  • The decision aligns the treatment of marketable and non-marketable collateral assets with such coupon structures.

Fabio Panetta: Asymmetric risks, asymmetric reaction: monetary policy in the pandemic

Wednesday, September 23, 2020 - 12:05am

SPEECHAsymmetric risks, asymmetric reaction: monetary policy in the pandemic Speech by Fabio Panetta, Member of the Executive Board of the ECB, at the meeting of the ECB Money Market Contact Group Frankfurt am Main, 22 September 2020 It is a pleasure to speak to the Money Market Contact Group today.

Key Points: 


SPEECH

Asymmetric risks, asymmetric reaction: monetary policy in the pandemic

    Speech by Fabio Panetta, Member of the Executive Board of the ECB, at the meeting of the ECB Money Market Contact Group

      • Frankfurt am Main, 22 September 2020 It is a pleasure to speak to the Money Market Contact Group today.
      • Money markets and central banks have an important relationship which, when it is working well, makes monetary policy more effective.
      • Money market prices reflect expectations of our policy and the understanding of our reaction function.

    The ECB’s policy response to the coronavirus (COVID-19) crisis

      • In pursuing our price stability mandate, our policy response to the crisis had three goals.
      • The first was to counter the downward impact of the pandemic on the projected path of inflation.
      • The second was to ensure that all parts of the euro area had access to liquidity, which was crucial for weathering the lockdown.
      • As a result of our policy measures, tail risks have been removed and systemic stress in the euro area has receded (Chart 1).
      • Without the ECBs action, the economic consequences of the pandemic would have been dramatic; we estimate that more than one million additional jobs would have been lost.
      • Fragmentation has receded substantially, as the decrease in the dispersion of sovereign bond yields shows.
      • This has safeguarded the transmission of monetary policy, with money market rates reconnecting to the ECB policy rates and sovereign yields reconnecting to risk-free rates, as proxied by overnight index swap (OIS) rates.
      • Chart 2 Euro area ten-year real rate (percentages per annum) Sources: Refinitiv and ECB calculations.
      • Notes: The real rate is constructed by subtracting the ten-year inflation-linked swap rate (ILS) from the nominal ten-year OIS rate.
      • The impact on lending conditions has been significant.
      • Our monetary policy measures, complemented by appropriate countercyclical supervisory measures, are enabling banks to keep credit flowing to households and businesses.
      • In July, the annual growth rate of loans to firms stood at 7%, more than double its level in February.
      • Benefiting from these developments, industrial production and the Purchasing Managers Indices (PMIs) have rapidly improved, partly recuperating the previous losses (Chart 3).
      • In this crisis, our independent monetary policy and fiscal policies in the euro area have also mutually reinforced each other, thereby increasing confidence.
      • This is the opposite of what we saw during the sovereign debt crisis, when yields increased alongside deficits.
      • Fiscal support to the economy also made our own policy more powerful.
      • But active fiscal policy also complements monetary policy through other channels.
      • So, insofar as monetary policy empowers fiscal policy and increases confidence, it also empowers its own effectiveness.

    The current economic situation

      • This was the explicit goal of our decision to expand and extend the PEPP in June.
      • And our pandemic support measures are contributing to that goal.
      • Inflation excluding the volatile components of food and energy, which plays an important role in our assessment, rises to only 1.1% in 2022.
      • Turning to economic activity, the recovery remains partial and uneven; GDP is only expected to recover to pre-crisis levels by the end of 2022.
      • Chart 4 Inflation expectations in the euro area SPF inflation expectations and 1y-in-4y ILS rate (percentages per annum) Sources: Bloomberg, Refinitiv, and ECB calculations.
      • The path to recovery is also exposed to new adverse shocks such as a possible disorderly Brexit as well as a loss of momentum due to various emerging economic and financial headwinds.
      • The appreciation of the euro is one factor that we need to watch closely with regard to its implications for the medium-term inflation outlook, particularly at a time when current and expected inflation rates are both very low.
      • The services sector, in which momentum has recently slowed somewhat, is another source of concern.
      • Looking ahead, job and wage uncertainty is likely to remain elevated and give rise to continued precautionary behaviour among households.
      • Together with corporate balance sheet vulnerabilities, weak aggregate demand and ample spare capacity, this is likely to compress investment.
      • This is not a normal recession, and we will not see a normal recovery without appropriate policies.

    Future policy calibration

      • In these difficult circumstances, our policy must remain forward-looking, and there are two key elements to this.
      • First, we need to constantly reassess whether the policy support we are providing and the calibration of our instruments are adequate to address the evolving shocks I have described and to achieve our objective of bringing inflation back to our medium-term aim in a sustained manner.
      • If we encounter shocks that compress demand and pose additional threats to price stability, our reaction function is clearly spelled out: a policy response is necessary and forthcoming.
      • The second element of a forward-looking policy response relates to how we assess and react to the balance of risks.
      • Faced with such a sizeable downward skew, there is a strong case for our reaction function to be asymmetric, as the risks of a policy overreaction are much smaller than the risks of policy being too slow or too shy to react and the worst-case scenarios materialising.
      • For as long as the growth and inflation outlook are at risk, monetary policy support will have to remain substantial, and if those risks to the outlook rise, our policy impulse will have to rise in tandem.


      This is particularly important for countries with weaker economies and high debt-to-GDP ratios. For these countries, the sizeable funding provided at the European level presents a unique opportunity to address concerns of competitiveness and long-term sustainability. Growth will be the only solution to the accumulation of public and private debt.

    Conclusion

    Christine Lagarde: Jointly shaping Europe’s tomorrow

    Tuesday, September 22, 2020 - 12:08am

    SPEECH Jointly shaping Europe’s tomorrow Introductory remarks by Christine Lagarde, President of the ECB, at the Franco-German Parliamentary Assembly, 21 September 2020As President of the European Central Bank and a French citizen living and working in Germany, it is an honour to speak at this historic forum.

    Key Points: 


    SPEECH

    Jointly shaping Europe’s tomorrow

      Introductory remarks by Christine Lagarde, President of the ECB, at the Franco-German Parliamentary Assembly, 21 September 2020

        • As President of the European Central Bank and a French citizen living and working in Germany, it is an honour to speak at this historic forum.
        • This parliamentary assembly is an embodiment of the special relationship between our two countries and their commitment to European integration.
        • I find it essential that the ECB constantly engages in two-way communication, especially with citizens representatives.
        • Our regular interlocutor is the European Parliament, to whom we are accountable under the Treaty for our monetary policy tasks.
        • Transnational settings like this one give us a further chance to look past nation-specific concerns as we discuss Europes future.
        • We must shape the recovery from this crisis in such a way that our economies are fit for the world of tomorrow.

      The unique strength of the European project

        • [3] While incoming data suggest that we will see a strong rebound during the third quarter[4], the strength of the recovery remains very uncertain, as well as uneven and incomplete.
        • It continues to be highly dependent on the future evolution of the pandemic and the success of containment policies.
        • One major reason why we can expect a rebound in activity in the second half of the year is because, when faced with the largest economic shock since the Second World War, Europe and its leaders showed the unique strength of the European project: by acting together, we can achieve more.
        • The ECB has played its part in this collective effort in the face of an unprecedented crisis.
        • We launched the pandemic emergency purchase programme (PEPP) to help stabilise financial markets and ease our monetary policy stance considerably.
        • Ambitious fiscal measures by national governments were complemented by a 540 billion European safety net.
        • For the first time, a common budgetary instrument at European level can be used to complement fiscal stabilisers at national level, even if it is currently only temporary.

      The case for jointly shaping Europe’s future

        • It is time for Europe to move beyond the initial priority of containing the immediate impact of the crisis and shape a common vision for its future.
        • We also increase our autonomy and ensure that Europe is better protected in the world of tomorrow.
        • As legislators, you have a crucial role to play in designing policies that can revitalise our economies.
        • Digitalisation is a case in point.
        • We need to fully reap the potential gains from digital technologies and, at the same time, make sure labour markets remain inclusive.
        • [5] By implementing the right set of national and European policies, we will achieve more together than we can alone.
        • And deep and liquid capital markets will also go a long way towards strengthening the international role of the euro and bolstering Europes strategic autonomy.
        • The ECBs ongoing strategy review will ensure that its monetary policy strategy is fit for purpose, both today and in the future.
        • Listening to European citizens expectations and better understanding their economic concerns and expectations before making decisions is an important part of this review.

      Conclusion

      Christine Lagarde: Jointly shaping Europe’s tomorrow

      Tuesday, September 22, 2020 - 12:05am

      SPEECH Jointly shaping Europe’s tomorrow Introductory remarks by Christine Lagarde, President of the ECB, at the Franco-German Parliamentary Assembly, 21 September 2020As President of the European Central Bank and a French citizen living and working in Germany, it is an honour to speak at this historic forum.

      Key Points: 


      SPEECH

      Jointly shaping Europe’s tomorrow

        Introductory remarks by Christine Lagarde, President of the ECB, at the Franco-German Parliamentary Assembly, 21 September 2020

          • As President of the European Central Bank and a French citizen living and working in Germany, it is an honour to speak at this historic forum.
          • This parliamentary assembly is an embodiment of the special relationship between our two countries and their commitment to European integration.
          • I find it essential that the ECB constantly engages in two-way communication, especially with citizens representatives.
          • Our regular interlocutor is the European Parliament, to whom we are accountable under the Treaty for our monetary policy tasks.
          • Transnational settings like this one give us a further chance to look past nation-specific concerns as we discuss Europes future.
          • We must shape the recovery from this crisis in such a way that our economies are fit for the world of tomorrow.

        The unique strength of the European project

          • [3] While incoming data suggest that we will see a strong rebound during the third quarter[4], the strength of the recovery remains very uncertain, as well as uneven and incomplete.
          • It continues to be highly dependent on the future evolution of the pandemic and the success of containment policies.
          • One major reason why we can expect a rebound in activity in the second half of the year is because, when faced with the largest economic shock since the Second World War, Europe and its leaders showed the unique strength of the European project: by acting together, we can achieve more.
          • The ECB has played its part in this collective effort in the face of an unprecedented crisis.
          • We launched the pandemic emergency purchase programme (PEPP) to help stabilise financial markets and ease our monetary policy stance considerably.
          • Ambitious fiscal measures by national governments were complemented by a 540 billion European safety net.
          • For the first time, a common budgetary instrument at European level can be used to complement fiscal stabilisers at national level, even if it is currently only temporary.

        The case for jointly shaping Europe’s future

          • It is time for Europe to move beyond the initial priority of containing the immediate impact of the crisis and shape a common vision for its future.
          • We also increase our autonomy and ensure that Europe is better protected in the world of tomorrow.
          • As legislators, you have a crucial role to play in designing policies that can revitalise our economies.
          • Digitalisation is a case in point.
          • We need to fully reap the potential gains from digital technologies and, at the same time, make sure labour markets remain inclusive.
          • [5] By implementing the right set of national and European policies, we will achieve more together than we can alone.
          • And deep and liquid capital markets will also go a long way towards strengthening the international role of the euro and bolstering Europes strategic autonomy.
          • The ECBs ongoing strategy review will ensure that its monetary policy strategy is fit for purpose, both today and in the future.
          • Listening to European citizens expectations and better understanding their economic concerns and expectations before making decisions is an important part of this review.

        Conclusion

        KBRA Europe Assigns Preliminary Ratings to BlackRock European CLO X Designated Activity Company

        Thursday, September 17, 2020 - 10:42pm

        Kroll Bond Rating Agency Europe Limited (KBRA) assigns preliminary ratings to five classes of notes to be issued by BlackRock European CLO X Designated Activity Company (BlackRock Euro CLO X DAC), a cash flow collateralised loan obligation (CLO) back primarily by a diversified portfolio of Euro-denominated corporate loans and bonds.

        Key Points: 
        • Kroll Bond Rating Agency Europe Limited (KBRA) assigns preliminary ratings to five classes of notes to be issued by BlackRock European CLO X Designated Activity Company (BlackRock Euro CLO X DAC), a cash flow collateralised loan obligation (CLO) back primarily by a diversified portfolio of Euro-denominated corporate loans and bonds.
        • BlackRock Euro CLO X DAC is managed by BlackRock Investment Management (UK) Limited (BlackRock UK or the collateral manager).
        • The collateral in BlackRock Euro CLO X DAC will mainly consist of broadly syndicated leveraged loans and bonds issued by corporate obligors diversified across sectors.
        • BlackRock UK currently has 3.8 billion in AUM across 9 European CLOs as of June 2020 and has been a consistent European CLO issuer since 2015.

        ECB’s Governing Council says that exceptional circumstances justify leverage ratio relief

        Friday, September 18, 2020 - 12:04am

        PRESS RELEASE

        Key Points: 
        • PRESS RELEASE

          ECBs Governing Council says that exceptional circumstances justify leverage ratio relief

          17 September 2020

          The Governing Council of the European Central Bank (ECB) has decided that it concurs with ECB Banking supervision that there are exceptional circumstances allowing the temporary exclusion of certain central bank exposures from the leverage ratio.

        • The Governing Council said in an opinion: The situation brought about by the coronavirus (COVID-19) pandemic has affected all euro area economies in an unprecedented and profound way.
        • In the view of the Governing Council, therefore, the condition of exceptional circumstances warranting the temporary exclusion of certain exposures to central banks from the calculation of banks total exposure measures is met for the euro area as a whole.
        • This opinion of the Governing Council is a precondition for ECB Banking Supervision to allow significant banks that it directly supervises to exclude certain central bank exposures from the leverage ratio.

        ECB’s Governing Council says that exceptional circumstances justify leverage ratio relief

        Thursday, September 17, 2020 - 4:04pm

        PRESS RELEASE

        Key Points: 
        • PRESS RELEASE

          ECBs Governing Council says that exceptional circumstances justify leverage ratio relief

          17 September 2020

          The Governing Council of the European Central Bank (ECB) has decided that it concurs with ECB Banking supervision that there are exceptional circumstances allowing the temporary exclusion of certain central bank exposures from the leverage ratio.

        • The Governing Council said in an opinion: The situation brought about by the coronavirus (COVID-19) pandemic has affected all euro area economies in an unprecedented and profound way.
        • In the view of the Governing Council, therefore, the condition of exceptional circumstances warranting the temporary exclusion of certain exposures to central banks from the calculation of banks total exposure measures is met for the euro area as a whole.
        • This opinion of the Governing Council is a precondition for ECB Banking Supervision to allow significant banks that it directly supervises to exclude certain central bank exposures from the leverage ratio.

        Isabel Schnabel: Interview with Agence France-Presse (AFP)

        Thursday, September 17, 2020 - 12:04am

        INTERVIEWInterview with Agence France-Presse (AFP)Interview with Isabel Schnabel, Member of the Executive Board of the ECB, conducted by Jean-Philippe LacourAnd at the last Governing Council meeting there was still an exceptionally high level of uncertainty.

        Key Points: 


        INTERVIEW

        Interview with Agence France-Presse (AFP)

          Interview with Isabel Schnabel, Member of the Executive Board of the ECB, conducted by Jean-Philippe Lacour

            • And at the last Governing Council meeting there was still an exceptionally high level of uncertainty.
            • Eurozone unemployment is increasing rapidly, core inflation reached historic lows in August, the pandemic is gathering pace.
            • Yet the ECB is a little less gloomy about the economic outlook than three months ago.
            • We do not see a V-shaped economic development where we return to the pre-crisis path very quickly.
            • Instead, we see a protracted recovery that takes time, and the same is true for the inflation outlook.
            • Regarding inflation, we never base our decisions on just one month of data; we focus on how it evolves over the medium term.
            • We see that our measures provide tangible support to core inflation, which was, however, partly offset by other factors.
            • In our monetary policy strategy review, which has just been resumed, we will also listen carefully to the different stakeholders.
            • Regarding Brexit, how concerned are you about a no deal that is likely to weigh on economic activity?

          Isabel Schnabel: Interview with Agence France-Presse (AFP)

          Thursday, September 17, 2020 - 12:02am

          INTERVIEWInterview with Agence France-Presse (AFP)Interview with Isabel Schnabel, Member of the Executive Board of the ECB, conducted by Jean-Philippe LacourAnd at the last Governing Council meeting there was still an exceptionally high level of uncertainty.

          Key Points: 


          INTERVIEW

          Interview with Agence France-Presse (AFP)

            Interview with Isabel Schnabel, Member of the Executive Board of the ECB, conducted by Jean-Philippe Lacour

              • And at the last Governing Council meeting there was still an exceptionally high level of uncertainty.
              • Eurozone unemployment is increasing rapidly, core inflation reached historic lows in August, the pandemic is gathering pace.
              • Yet the ECB is a little less gloomy about the economic outlook than three months ago.
              • We do not see a V-shaped economic development where we return to the pre-crisis path very quickly.
              • Instead, we see a protracted recovery that takes time, and the same is true for the inflation outlook.
              • Regarding inflation, we never base our decisions on just one month of data; we focus on how it evolves over the medium term.
              • We see that our measures provide tangible support to core inflation, which was, however, partly offset by other factors.
              • In our monetary policy strategy review, which has just been resumed, we will also listen carefully to the different stakeholders.
              • Regarding Brexit, how concerned are you about a no deal that is likely to weigh on economic activity?