Implementation of the new risk control framework: liquidity categories and issuer group classification

In the context of the implementation of the new risk control framework applicable to eligible assets used in Eurosystem credit operations (i.e. intraday liquidity and monetary policy operations) announced in the press release of 2 July 2003, the Governing Council of the ECB has approved the following changes to the risk control framework, which will be reflected in the list of eligible assets published by the ECB in the Eligible Assets Database:

The list of eligible assets with the new issuer groups and asset types will be published on the ECB's website today. A snapshot file of the list of eligible assets will also be available on the ECB's website today in order to provide a clear overview of the various liquidity categories under which the assets fall. Until the revised version of the document currently entitled "The single monetary policy in the euro area: General documentation on the Eurosystem monetary policy instruments and procedures" is released, which is scheduled for the first quarter of 2004, counterparties will be able to find the new codes for the issuer groups and asset types and derive the corresponding liquidity category by making a query in the Eligible Assets Database on the ECB's website.

Once the above-mentioned documentation has been released, the ECB will publish on its website the new liquidity category codes for tier one assets, the amended codes for tier two assets as well as the new valuation haircuts.

Following the announcement in the press release of 2 July 2003, this document provides additional information on the classification of tier one assets under the various liquidity categories. It also details the changes to the Eligible Assets Database (EAD) in terms of the allocation of issuers to certain issuer groups and liquidity categories.

The new valuation haircuts will be applied upon implementation of the revised version of the document currently entitled "The single monetary policy in the euro area: General documentation on Eurosystem monetary policy instruments and procedures", which is scheduled for the first quarter of 2004.

Eligible tier one assets are allocated to one of four categories of decreasing liquidity based on issuer classification and asset type. All possible combinations of issuer group and asset type under the various liquidity categories are described in the table below:

Liquidity categories and issuer groups for tier one assets

(1) Asset-backed securities, excluding Pfandbriefe-style instruments. (2) As a result of the creation of the issuer group "Agency - credit institution", the issuer group "Credit institution" (IG4 in the EAD) has been renamed "Credit institution (excluding Agency - credit institution").

In general, the issuer group classification determines the liquidity category. However, all asset-backed securities fall under liquidity category IV regardless of the issuer group, all Jumbo Pfandbriefe-style instruments under liquidity category II, and all other securities issued by credit institutions under liquidity category III. Counterparties will be able to identify those securities that fall under the Pfandbriefe-style instruments by making a query in the Eligible Assets Database on the ECB's website. Pfandbriefe-style instruments fall under the Jumbo Pfandbriefe-style instruments where the volume issued is no less than €500 million and where at least two market-makers provide regular bid and ask quotes.

In addition to Jumbo Pfandbriefe-style instruments and securities issued by local and regional government and supranational issuers, liquidity category II includes securities issued by issuers classified as agencies by the ECB. Securities issued by other agencies fall under liquidity category III. The selection of issuers classified as agencies by the ECB will be reviewed on an annual basis.

In order to clearly reflect the type of issuer and to enable the eligibility criteria to be properly implemented, a distinction between "Agency - non-credit institution" (IG7 in the EAD) and "Agency - credit institution" (IG8 in the EAD) has been introduced within the group of agencies classified under liquidity category II.

The issuer group "Corporate" (IG3 in the EAD) has been broadened and renamed "Corporate and other issuers" (IG3 in the EAD). In addition to Corporate issuers, this group will include any issuers which are not specifically classified under any other issuer group.

The list of eligible assets will be published on the ECB's website today. A snapshot file of the list of eligible assets will also be made available on the website today in order to provide a clear overview of the various liquidity categories under which the assets fall. Until the revised version of the document currently entitled "The single monetary policy in the euro area: General documentation on the Eurosystem monetary policy instruments and procedures" is released, counterparties will be able to find the new codes for the issuer groups and asset types and derive the corresponding liquidity category by making a query in the Eligible Assets Database on the ECB's website.

Once the above-mentioned documentation has been released, the ECB will publish on its website the new liquidity category codes for tier one assets, the amended codes for tier two assets as well as the new valuation haircuts.