Eligibility criteria for mortgage bonds and haircut settings
The eligibility criteria for MBs are as follows:
- registered at the Central Securities Depository (CSDP),
- admitted to trading on an exchange,
- as the case may be, externally rated.
Where MBs are not issued under the new legislation in effect since January 2019, they will be accepted as collateral only until 30 June 2020. Where an MB issue has not received a rating, compliance with the conditions for preferential treatment under CRR will be taken into account. Since MBs are essentially not traded on the secondary market, a market valuation will not available and they will have to be valued theoretically. The risk arising from the theoretical pricing process results in a wider range of haircuts, from 6% for MBs with a high external rating to 42% for MBs that were issued under the legislation in effect until January 2019, are in own use, are unrated and are non-compliant with the condition for preferential treatment under CRR.
|Residual maturity in years||Security type|
|fixed rate||variable rate|
|10 or more||10%|
Additional haircuts for MBs
|1||a) issue rated “A-” or higher*, CRR**||n/a||n/a||0%|
|b) issue unrated, issuer rated “A-” or higher, CRR||5%|
|c) issue and issuer both unrated, CRR||10%|
|d) issuer rated “A-” or higher||15%|
|e) none of a) to d)||20%|
|2||MBs in own use***||7%|
|3||MBs issued under legislation in effect until January 2019||5%|
* i.e. external rating by S&P’s A- or higher, Moody’s A3 or higher, Fitch Ratings A- or higher, or DBRS AL or higher
** bonds eligible for preferential treatment under Regulation No 575/2013 of the European Parliament and of the Council (EU) of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012
*** “own use” means the case where a counterparty submits or uses MBs issued or guaranteed by the counterparty or by any other entity with which the counterparty has close links pursuant to Article 138 of Guideline (EU) 2015/510 (ECB/2014/60).