Central banks provide credit funding to financial institutions on specific legal terms and in return for receiving eligible collateralization as security against that funding. In the Eurozone, the European Central Bank (ECB), acts as the primary gatekeeper for the Eurosystem1 central banks and sets its rules in terms of whom and on what terms it provides funding to.
The Eurosystem has, subject to certain national central bank specifics, largely centralized the rules on what constitutes eligible collateral assets, who can provide them and subject to which quantitative 'haircuts' along with other risk control measures2. The Eurosystem has also set rules as to which central banks can accept relevant 'eligible' collateral assets. All of these issues are key to both monetary policy (MonPol) transmission measures as well as liquidity provision activities. These considerations and relevant rules are contained in the Eurosystem's 'General Documentation' (the GenDoc).
At the heart of those considerations, aside from the degree of (credit) quality of the collateral assets, is legal certainty. Legal certainty in respect of the existence of the collateral asset and the ability of the central bank, as collateral taker, to enforce against that security in the event of a collateral providers' default is central to collateralization principles applied between market participants. This is no different for the ECB and the Eurosystem in relation to their MonPol or other collateral operations and the objectives and/or tenor of such operations.
As post-crisis regulatory rules continue to emphasize collateralization and suitable quality of collateral assets, the drive for 'smart collateralization', resilience of funding channels and efficient mobilization of collateral assets will undoubtedly continue. This is especially the case as various market forces put pressure on the amount of available collateral as well as their mobilization. These pressures exist for assets that are termed "marketable" i.e., debt instruments admitted to trading (and which fulfil GenDoc eligibility criteria) inasmuch as to those that are termed "non-marketable", such as credit claims i.e., loans, that have proven difficult to mobilize as collateral assets.
This Background Briefing specifically looks at the collateral asset that the Eurosystem's GenDoc terms a "debt instrument backed by eligible credit claims" (a DECC) and how these non-marketable assets could be employed as a funding tool when compared to "other" mobilization channels that otherwise pool credit claims. This Background Briefing concludes with summarizing other changes introduced into the GenDoc that are both relevant to DECCs but also to wider MonPol activity.
DECCs, which are the Eurosystem's most recent addition of eligible collateral assets, benefitted from refinements to its rules in 2019. DECCs offer a transparent structure with direct double recourse to the issuer but also the originator/guarantor of the pool. They also offer the ability for one DECCs issuer to purchase eligible credit claims from multiple Eurozone banking operations. This would permit the EU banking sector, notably Banking Union Supervised Institutions (BUSIs) to package bank loans into DECCs, thus possibly freeing up balance sheets. This feature, taken together with the ECB's "other" MonPol operations, including the targeted long-term refinancing operations (TLTROs) and asset purchases under its "extraordinary" i.e., quantitative easing measures means the ECB could provide an efficient backstop much in the same way that its central banking peers do in the UK and United States.
What are DECCs?
To recap, the GenDoc differentiates between "marketable assets" i.e., those debt instruments that are admitted to trading on a market and fulfil specific eligibility requirements set out in the GenDoc and those that are "non-marketable assets"3. In simple terms, non-marketable assets are defined in the GenDoc to include any of the following: 'credit claims'4 i.e., loans to specific legal persons5, retail mortgage backed debt instruments (RMBDs), fixed-term deposits from eligible counterparties (FTDECs). DECCs provides a potential work-around to the mobility issue and the rules introducing DECCs reduce the concerns in respect of value reduction of the underlying credit claims.
DECCs use many principles present in other traded structured finance instruments even if DECCs are intended to be different to those instruments and thus expected to be designed by market participants to be outside the rules regulating such instruments. Conceptually DECCs are similar to a structured and privately issued covered bond where the central bank holds the note i.e., the DECCs stands as the collateral asset that is given to the central bank as security for its central bank funding. From a transaction timeline perspective, this includes the following steps:
- composing a 'dynamic' cover pool of underlying credit claims that is then transferred by way of true sale to a SPV
- a SPV (as DECCs issuer) issues a non-tradable debt instrument (i.e. the DECCs instrument), backed by the 'dynamic' cover pool of underlying credit claims. The underlying credit claims in the dynamic cover pool need to satisfy the GenDoc eligibility criteria, as amended, that apply to credit claims
- the DECCs instrument is then mobilized as collateral in exchange for Eurosystem central bank funding that is provided
- structurally, the DECCs instrument references the underlying pool of credit claims and has 'dual recourse' features in that it provides recourse against the originator of the credit claims, i.e. an EU credit institution e.g. a bank, as well as recourse to the pool of credit claims themselves, and
- it is the DECCs instrument itself that becomes the mobilized collateral asset i.e. as a non-marketable asset taken by a relevant Eurosystem central bank as security for the central bank funding whilst still facilitating dual recourse. This solves issues that in some jurisdictions may otherwise reduce the ability or the efficiency of mobilizing a pool of credit claims.
The DECCs Guideline and relationship with the GenDoc
As an ECB 'Guideline' the GenDoc is a legal instrument and part of the Eurosystem's 'General Framework'. It provides a single collateral framework across all relevant operations and ensures that these operations are executed uniformly across the Eurozone, irrespective of whether the ECB is acting directly, in coordination with the Eurosystem national central banks (NCB) or in a decentralized fashion with one or multiple NCBs conducting MonPol operations. The GenDoc is also supported by both the specific national eligibility criteria6 and risk control measures in the ECB's 'Temporary Framework', which also applies to credit claims. The GenDoc is thus central to the ECB's MonPol activity both as collateral taker and in relation to the extended asset purchase programs.
The legal arrangements that facilitate the actual mobilization of collateral assets, whether as marketable assets and/or non-marketable assets (including DECCs) by eligible counterparties with the Eurosystem are concluded separately and will need to be interoperable with the GenDoc's provisions and notably Article 97 of the GenDoc, as amended including by the DECCs Guideline (defined below).
The ECB created DECCs by amending its GenDoc7 through a legislative instrument, Guideline (ECB/2015/27)8, which was first published 31 August 2015 and updated on 28 October 2015, as well as more recently through ECB Guideline (ECB 2019/11)9 (the 2019 DECCs Amendments, collectively with the aforementioned, the DECCs Guideline).
Confusingly the original and final DECCs Guideline also introduced a range of other non-DECCs related changes in the GenDoc. These have, mostly since 2016, a far-wider reaching impact and are highlighted for reference below.
A deeper dive...So what actually makes a DECCs?
From a structuring perspective, DECCs must satisfy the following:
- be backed, directly or indirectly, by Eurozone domiciled and euro denominated homogenous credit claims granted to debtors established in a euro area Member State and on terms that satisfy the Eurosystem eligibility criteria set out in the GenDoc
- offer dual recourse
- credit institution that is the originator of such underlying credit claims (the originator must be a Eurozone domiciled Eurosystem counterparty), and
- the dynamic cover pool of underlying credit claims
- have no risk tranching10
- have a fixed, unconditional principal amount and a coupon structure that complies with the criteria set forth in Article 63 of the GenDoc
- the cover pool shall only contain credit claims for which either: (a) a specific ECB DECC loan-level data reporting template; or (b) an ABS loan-level data reporting template in accordance with Article 73, is available
- not give rise to rights to the principal and/or the interest that are subordinated to the rights of holders of other debt instruments of the same issuer
- each underlying credit claim, but not the DECC itself, must satisfy credit ratings of: at least the ECB's Credit Quality Step (CQS) 3 (corresponding to Fitch BBB- to BBB+) as awarded by one of the External Credit Assessment Institutions (ECAIs)11 i.e. a credit rating provider (but see also terms, introduced by the 2019 DECCs Amendments as regards to NCB internal credit rating systems (ICAS) and/or use of firms internal ratings based systems)
- each DECCs and the underlying
credit claims are required to comply with the transparency
obligations set out in Article 107e of the GenDoc, which
- at the level of the DECCs structure: detailed information on the key transaction data, identification of parties to the transaction, key structural features, key description of collateral and the terms and conditions. These terms are similar to those in other eligible marketable assets. The GenDoc grants the Eurosystem powers to request any transaction documentation and legal opinions deemed necessary from any third-party it considers relevant, and
- at the level of the individual credit claims: comprehensive and standardized loan-level data on the pool of underlying credit claims, which must be homogenous and must be capable of using a single ECB DECC loan-level data reporting template, must be made available in the same manner as with cash-flow generating assets backing ABS (except with the reporting frequency)12 to an ESMA Securitization Repository, authorized pursuant to the EU's Securitization Repository, (such as the European DataWarehouse) or another Eurosystem designated repository
- the DECCs originator is
required (in practical terms, acting on behalf of the DECCs issuer)
- where required, provide debtor notification and/or public registration, in relation to a transfer of the underlying credit claims as part of construction of a DECCs instrument or mobilization to give full effect to such transactions. Article 107f(5) of the GenDoc introduces requirements as to when notifications must be given to debtors before or following a transfer irrespective of any applicable law provisions, and
- undertake specific commitments to the relevant NCB in respect of the verification of the existence of the credit claims and provide self-certifications on a quarterly or more frequent basis including compliance with ad-hoc checks. The details of these requirements are described in further detail in the context of other changes to the GenDoc. As a practical note, overcollateralization i.e., by having a greater amount of credit claims in the pool backing the DECCs than the amount of Eurosystem funding helps mitigate any perceived risks of the value of the credit claim being reduced or extinguished, and
- The governing law applicable to the DECC, the originator, the debtors and, where relevant, the guarantors of the underlying credit claims, the underlying credit claim agreements and any agreements ensuring the direct or indirect transfer of the underlying credit claims from the originator to the issuer shall be the law of the jurisdiction where the issuer is established.
Who can issue DECCs?
The precise definition of what constitutes a DECCs issuer was subject to adjustments prior to the final published version of the DECCs Guideline. The definition now reads as follows: "The DECC issuer shall be an SPV established in a Member State whose currency is the euro. Parties to the transaction, other than the issuer, the debtors of the underlying credit claims and the originator shall be established in the EEA."
Whilst the drafting is still not quite as precise and consistent as it could be,13 references to SPV were originally limited to mean 'Securitization Special Purpose Entities', which would make it difficult to issue a DECCs, if at all14. In any event, in order to qualify as such, a DECCs issuer must be a separate entity that acquires the underlying credit claims from the originator in a manner that the Eurosystem considers to be a true sale or the equivalent of a true sale enforceable against any third-party and with no claw-back on insolvency of the originator. Consequently, this provision might require, as with other Eurosystem eligible collateral, that during the structuring process a true sale legal opinion is obtained as part of the mobilization process of the DECCs with the Eurosystem or other parties.
Furthermore, the requirement for the DECCs Issuer to be an SPV eventually provides significant structural restrictions for the implementation of other core concepts of DECCs: other tested dual recourse structures existing in the market (e.g. a number of "structured covered bonds") use a set-up more akin to classical covered bonds, with (i) the originator (bank) acting as Issuer and (ii) the asset pool being legally separated in various ways; such approach however, appears to be impossible under the DECCs Guideline. While it is not entirely clear why this approach has been chosen, it may well give rise to legal structuring challenges in a number of jurisdictions and for a number of asset classes.
So whom can DECCs be placed with?
DECCs have been gradually subject to a phased implementation both in their design but also their deployment. As it currently stands DECCs are accepted on a domestic basis, while a uniform and functional cross-border acceptance solution does not yet exist (despite changes introduced in Guideline ECB/2015/3415, which took effect in January 2016 and aim at achieving such uniform and functional solution).
As a result, for the time being DECCs backed by German credit claims can to mobilized with the Bundesbank, as Italian credit claim DECCs can be mobilized with the Banca d'Italia and so on. The 2016 amendment to the GenDoc's definition of "cross-border use" permits DECCs to be mobilized via the Eurosystem's correspondent central bank model16 (CCBM) solution17. This means that a DECCs can be issued, mobilized and then held in another Eurozone Member States than that of a "home" Member State. Thus, DECCs backed by French credit claims could be mobilized with say the Central Bank of Ireland etc. However, as a number of NCBs currently still apply additional national specific requirements for their acceptance of DECCs, such cross-border concept yet remains somewhat theoretical.
If implemented in practice, the extension of the definition of "cross-border use", specifically in relation to DECCs may also help to deliver on wider EU policy goals, including the Eurozone's further integration and the finalization of the building blocks of the Capital Markets Union. This could open up a wealth of further opportunities.
Additional legal requirements applicable to credit claims and their eligibility
The DECCs Guideline made a number of changes to the eligibility of credit claims by introducing qualitative standards relating to the legal terms. These aim to reduce the risk that the values of credit claims, when provided as collateral to the Eurosystem are reduced or extinguished. A new Article 99 in the GenDoc introduced related requirements (primarily through corresponding provisions in Articles 107a to 107f in relation to DECCs). These change the acceptance process of credit claims for Eurosystem collateral operations generally and more specifically in relation to credit claims being used in a DECCs as described below:
|General criteria applicable to all credit claims
(Article 99 Criteria)
Article 99 (Additional legal requirements for credit claims)
|"In order to ensure that a valid security is created over credit claims and that the credit claim can be swiftly realised in the event of a counterparty default, additional legal requirements shall be met. These legal requirements shall relate to:"||Neither Article 99(1) nor GenDoc defines:
|"(a) verification of the existence of the credit claims;"|
|"(b) validity of the agreement for the mobilisation of credit claims;"|
| "(c) full effect of the mobilisation
vis-à-vis third parties;"
"(d) an absence of restrictions concerning the mobilisation and realisation of credit claims;"
"(e) an absence of restrictions concerning banking secrecy and confidentiality."
|It is not clear how strict the interpretation of "an absence of restrictions" is likely to be taken, however in most securitisation transactions where treatment of sensitive personal data of underlying borrowers or onerous data protection restrictions exist, solutions are found or the relevant data is not of material or any importance to the collateral taker.|
These additional "general legal requirements" as introduced by the new Article 99 of the GenDoc are further supplemented by additional modifications in Article 107f of the GenDoc and which are DECCs relevant and introduce obligations in:
requiring the NCB of the country where the DECCs originator is established, or supervisors or external auditors, to conduct a one-off verification of the appropriateness of the procedures used by the DECCs originator to submit the information on the underlying credit claims to the Eurosystem. Given that a DECCs issuer becomes the owner of the underlying assets following a true sale or equivalent form of acquisition, the DECCs originator in this instance would still have a compliance and verification obligation given how this rule is drafted. In practical terms this is likely to require entering into contractual arrangements that facilitate the DECCs originator, on behalf of the DECCs issuer, being able to comply with these obligations vis-à-vis the Eurosystem;
obliges the NCB of the country where the originator is established to, as a minimum, take all of the following stems to verify the existence of the underlying credit claims:
- It shall obtain written confirmation
from the DECCs originator (and it is presumed this will have to be
the DECCs issuer's behalf), to at least on a quarterly basis,
- the existence of the underlying credit claims. Although there is scope that this confirmation could be replaced with cross-checks of available information held in central credit registers;
- compliance of the underlying credit claims with the Eurosystem's eligibility criteria;
- that the underlying credit claims are not simultaneously used as collateral for the benefit of any third-party and that the DECCs originator will not mobilize such underlying credit claims as collateral to the Eurosystem or any third party. The requirements of Article 107f(4)(a)(iii) however confuse the point that the underlying credit claims would have been transferred by way of true-sale to the DECCs issuer;
- that the DECCs originator will undertake to communicate to the relevant NCB no later than within the course of the next business day [undefined], any event that materially affects the collateral value of the underlying credit claims, in particular early, partial or total repayments, downgrades [presumably of the underlying borrower although this is not stated] and material changes [presumably limited to material adverse changes] in the conditions of the underlying credit claims; and
- the NCB of the country where the DECCs originator is located or the relevant central credit registers, banking supervision competent authorities or external auditors, shall perform random checks in respect of the quality and accuracy of the written confirmation of originators, by means of delivery of physical documentation or through on-site visits. This can include check of ratings based systems.
Further details of the specific features of the national jurisdictions are provided in the relevant national documentation of the NCBs (e.g. the Allgemeine Geschäftsbedingungen of the Bundesbank in the case of Germany) along with the ECB maintained 'Temporary Framework', which should be consulted as part of any structuring considerations or mobilization decisions with respect to credit claims including the structuring of a DECCs instrument.
An important regulatory and supervisory risk consideration relevant to structuring a DECCs instrument may arise in respect of the provisions of Article 107f(4)(c). This stipulates that any of the aforementioned checks by the NCB in the country where the DECCs originator is located can be carried out "contractually" i.e. by the relevant NCB instruction or within "applicable national requirements" by any of the following:
- "supervisors" an undefined term but which can include presumably joint supervisory teams or ECB supervisory staff. From a strict legal interpretation it should be noted that the DECCs issuer, as a SPV and presumably a non-financial corporate, is likely to be beyond the supervisory mandate of the national authorities and the ECB;
- "external auditors" an undefined term; or
- "central credit registers" an undefined term and unclear whether these would even have jurisdiction to begin with.
Lastly, the changes introduced by the DECCs Guideline to the GenDoc introduce additional reporting18 requirements to the European DataWarehouse (EDW) of specific loan level data underlying the DECCs.
Changed requirements for guarantees of claims backing DECCs
The 2019 DECCs Amendments also made changes to the eligibility of guarantors, if any, for claims backing DECCs. Consequently, if a guarantor is not a public sector entity with the right to levy taxes, a legal confirmation concerning the legal validity, binding effect and enforceability of the guarantee shall be submitted to the relevant NCB in a form and substance acceptable to the Eurosystem before the marketable assets or credit claim supported by the guarantee can be considered eligible.
The legal confirmation shall be prepared by persons who are "independent" of the DECCs issuer, the issuer/debtor of the claim and its guarantor, and legally qualified to issue such confirmation under the applicable law, e.g. lawyers practicing in a law firm, or working in a recognized academic institution or public body.
The legal confirmation shall also state that the guarantee is not a personal one and is only enforceable by the holders of the marketable assets or the creditor of the credit claim. If the guarantor is established in a jurisdiction other than the one of the law governing the guarantee, the legal confirmation shall also confirm that the guarantee is valid and enforceable under the law of the jurisdiction in which the guarantor is established.
For marketable assets, the legal confirmation shall be submitted by the counterparty for review to the NCB that is reporting the relevant asset supported by a guarantee for inclusion in the list of eligible assets. For credit claims, the legal confirmation shall be submitted by the counterparty seeking to mobilize the credit claim for review to the NCB in the jurisdiction of the law governing the credit claim. The requirement of enforceability is subject to any insolvency or bankruptcy laws, general principles of equity and other similar laws and principles applicable to the guarantor and generally affecting creditors' rights against the guarantor.
Adding the concept of a possibly large and fluctuating pool of claims backing DECCs (as is intended by the DECCS Guideline and the rationale behind it), it may well be logistically and financially challenging to provide the required legal confirmations.
Requirement for guarantees for the Issuer's obligations under the DECCs
The aforesaid requirements applying to guarantees, if any, for claims backing DECCs must not be confused with the practical requirement for a guarantee (or similar instrument) to ensure the dual recourse feature of a DECCs.
As addressed above, the requirement for the DECCs Issuer to be an SPV eventually requires the interposition of some additional instrument to create a direct claim against the originator of the claims backing the DECCs, thereby possibly giving rise to legal structuring challenges in a number of jurisdictions and for a number of asset classes.
Changes to the Eurosystem counterparty eligibility criteria set out in the DECCs Guideline - a greater impact beyond just DECCs?
The original DECCs Guideline also amended the counterparty eligibility assessment criteria contained in Article 55 of the GenDoc in full and inserted new rules. That amended provision is in turn supplemented by a new Article 55a (Assessment of the financial soundness of institutions). Welcomingly, that change introduced new uniform counterparty eligibility criteria for all Eurosystem MonPol operations. Cumulatively, those changes, despite being introduced in the DECCs Guideline, have a far much wider impact than just DECCs. Rather, they apply to all non-marketable and marketable assets in relation to collateral operations.
The changes mean that the ECB, as primary gatekeeper of the Eurosystem's GenDoc maintains a list of eligible institutions that fulfil the following criteria (simplified for purposes herein) allowing "participation by institutions [which is taken to mean primarily credit institutions i.e. banks] that fulfil the following criteria" and shall be:
- subject to the Eurosystem's minimum reserve system without any exemption
- one of the following:
- subject to at least one form of harmonized Union/EEA supervision by competent authorities in accordance with CRD IV/CRR
- publically owned credit institutions, or
- institutions subject to non-harmonized supervision by competent authorities of a standard comparable to harmonized Union/EEA supervision by such competent authorities pursuant to CRD IV/CRR e.g. branches of non-EEA undertakings established in Eurozone Member States
- in compliance with any operational requirements specified in the contractual or regulatory arrangements applied by the home NCB or ECB with respect to the specific instrument or operation
- financially sound within the meaning
of Article 55a –means an assessment by the Eurosystem taking
into account the following prudential information:
- quarterly information on capital, leverage and liquidity ratios reported under CRR on an individual and consolidated basis, in accordance with supervisory requirements; or where applicable such comparable standard of information
- such information as may be required by the home NCB or the ECB. An additional certification from an external auditor may be required
- with respect to:
- branches, such information on capital, leverage and liquidity ratios as required under CRR, or such comparable standard, on an individual and consolidated basis in accordance with the supervisory requirements
- institutions that have been subject to an in-kind recapitalization with public debt instruments, the Eurosystem may take into account the methods used for and the role played by such in-kind recapitalization, including the type and liquidity of such instruments and the market access of the relevant issuer, or
- asset management vehicles i.e. 'bad banks' created as a result of a regulatory led resolution action using the asset separation tool under the national legislation implementing the BRRD shall not be eligible for Eurosystem MonPol operations.
The 2015 DECCs driven update to the GenDoc also replaced Article 158 in its entirety, and granted the Eurosystem rights to take preventive measures including the suspension, limitation or exclusion of an eligible counterparty's access to MonPol operations following any contractual or regulatory arrangements applied by the home NCB or the ECB including where a counterparty is deemed "failing or likely to fail" in the context of a pending regulatory-led resolution action. An additional amendment was included whereby the Eurosystem can reject, limit the use of, or otherwise apply supplementary haircuts to collateral assets mobilized by a specific counterparty if the counterparty's credit quality appears to "...exhibit a high correlation with the credit quality of the assets mobilized as collateral". The threshold of what constitutes a high correlation has not been defined at the time of writing. These changes therefore mean that supervisory findings, including stress-test results, may have a further impact for MonPol activities.
So what next?
Whilst DECCs may at first glance seem complicated, they could provide certain advantages for both collateral provider and taker by facilitating a more efficient use of credit claims. This may translate into cheaper terms of funding as, from the perspective of the collateral taker, DECC's dual recourse feature and the information requirements provide the collateral taker with greater certainty and ability to monitor what it is receiving. DECCs have also been earmarked as a potential blueprint for the structuring of Sovereign Bond Backed Securities i.e., a Euro Area Safe Asset.
Moreover, even if the construction of a DECCs may require tailored legal advice in relation to the portfolio of credit claims, as well as an assessment of national laws and constraints of individual Eurozone jurisdictions19 along with consideration of Eurosystem specifics, this still relatively "new" collateral asset may open up additional funding options and alternatives. It may also provide new opportunities for smaller credit institutions to monetize their portfolios of credit claims.
In addition to central bank uses, there is also scope to argue that the legal technology behind DECCs may provide good grounds for other private sector participants becoming interested in structuring, sourcing or securing positions using DECCs or a similar style structure. However, the combination of the various requirements promulgated by the DECCs Guideline imposes significant structuring restrictions, and gives rise to a number of possible legal and practical challenges, in the context issuing DECCs.
It remains to be seen if the DECCs Guideline in its current form does enough to free up significant additional resources, or if further changes and clearer incentives are necessary to make DECCs sufficiently attractive to the financial institutions they are intended to support.
1. The 'Eurosystem' comprises the European Central Bank (ECB) and the national central banks (NCBs) in those EU Member States that have adopted the euro. In relation to non-marketable assets and their eligibility it should be noted that in addition to the Eurosystem's eligibility criteria, certain Member States have additional collateral eligibility rules as set out below.↩
2. margin calls, concentration limits and transparency plus reporting requirements etc. ↩
4. Subject to revisions in new Article 99 of the GenDoc providing additional criteria of legal construction, credit claims are EUR denominated debt obligations that meet the Eurosystem credit assessment framework rules for credit claims with debtors/guarantors being Eurozone domiciled public sector entities, non-financial corporations, international and supranational institutions. The minimum size threshold of credit claims when used as a collateral asset must be for (A) domestic use EUR 25k (which was harmonized in 2019) or any higher amount set by the home NCB; and (B) in a cross-border context – EUR 500k upwards. The governing law for credit claim agreement and law of mobilization must be of a Member State of the Eurozone and the total number of applicable different laws documenting the following may not exceed two: - the counterparty; - the creditor; - the debtor; - the guarantor (if relevant); - the credit claim agreement; and - the mobilization agreement.↩
5. Provided that these cannot be reduced. From the Eurosystem's perspective, this reduction may occur as a result of a debtor i.e., a borrower under a credit claim, exercising a right of set-off (or such analogous) rights against the (mobilizing) credit institution. Exercise of such rights reduce if not extinguish the principal amount of the credit claim mobilized as collateral to a collateral taker such as the Eurosystem. ↩
6. The specific national measures are available on the websites of the respective NCBs of Austria, Cyprus, France, Greece, Ireland, Italy, Spain, Slovenia and Portugal.↩
7. Officially "Guideline (EU) 2015/510 of the European Central Bank of 19 December 2014 on the implementation of the Eurosystem monetary policy framework" (as amended). The DECCs Guideline makes the following changes in the GenDoc:↩
- Article 2 paras. 70 and 70a with respect to types of eligible assets;
- Articles 107a to 107f with respect to new eligibility criteria applicable for DECCs;
- Article 112a with respect to credit quality requirements; and
- Article 133a with respect to risk control measures.
10. The notion of what constitutes 'tranching' is not defined in the DECCs Guideline. The absence of tranching may mean that the DECCs issuer, could, subject to certain tailoring of structures, otherwise fall within the scope of the regulatory regime applicable to EU Alternative Investment Funds. As currently drafted the inconsistencies amongst a couple of the EU legislative provisions that the GenDoc cross-refers to may mean that the scope of set-up of the DECCs issuer may entail some regulatory classification issues or conceptual translation risks across EU legislation as well as how these apply to the GenDoc.↩
12. Pursuant to Article 107(e)(4) of the GenDoc, if loan level data is not reported or updated within one month of the cut-off date of the underlying pool's construction, then the DECCs shall cease to be eligible for mobilization to the Eurosystem.↩
13. A more general issue in the GenDoc.↩
14. As per the original definition, the DECCs issuer must be an SPV (The original definition of SPV in the GenDoc means a securitization special purpose entity as defined in point 66 of Article 4(1) of Regulation (EU) No. 575/2013, i.e. CRR. That definition differs to what is used in relation to delineating the scope of whether an entity is an Alternative Investment Fund and is likely to not be amended by the pending EU Securitization Regulation.)14 established in a Eurozone Member State and the other parties to the transaction, other than the DECCs issuer, the debtors of the underlying credit claims and the originator (all of whom must be Eurozone domiciled, must be established in the EEA. Pursuant to a new Article 107d of the GenDoc, the DECCs issuer must acquire the underlying credit claims in a manner that the Eurosystem considers to be a 'true sale' or true sale equivalent enforceable against any third party.↩
19. In Spain for example, it has been noted that Fondos de Titualzicaion, specialist Spanish law asset-backed vehicles, which are also used for general securitization vehicles in Spain, could offer an appropriate solution given the requirements imposed on a DECCs issuer.↩
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