In addition, a valuation markdown of 5% is imposed on those ABS that are priced theoretically. Second, the ECB has extended the definition of “close links” between counterparty and collateral. As you may know, the existence of such links, which are currently defined only in terms of cross ownership of capital, would prevent a counterparty from using that collateral.
With the announced change, “close links”, are extended to situations in which a counterparty submits an ABS as collateral when it provides support to that ABS. Such support should not be in the form of extensive liquidity support or in the form of a currency hedge. Finally, we have placed more weight on the transparency of the credit assessments by ratings agencies.