The European Central Bank is investigating claims it applies different rating standards and charges different risk premiums in liquidity programmes for Spanish and Irish banks.
An investigation by Germany’s Welt am Sonntag newspaper claimed the ECB is applying a more lax standard to Spanish bank loan applications, allowing them borrow money at better terms than Irish lenders.
The investigation looked at the conditions applied to the ECB’s loan buy-up programme, totalling €80 billion. Introduced at the height of the crisis, the programme allows banks to source unlimited liquidity from the Frankfurt bank at an interest rate of 0.75 per cent, with banks providing sovereign bonds as collateral.
The newspaper reported that Spanish banks have received loans of €16.6 billion.
The bonds offered as collateral – 18-month treasury bonds, or T-bills – have a second-to-best “B” risk rating from the big three ratings agencies: Fitch, Moody’s and Standard Poor’s.
If the ECB used this rating as its guide, Spanish banks would pay a risk premium of 5.5 per cent on their loans. Instead the ECB reportedly draws on the ratings of Canadian agency DBRS.
It gives Spanish T-bonds an “AL” or “A (low)” – technically still a top rating, allowing Spanish banks borrow money with the lowest risk premium of just 0.5 per cent. This releases €9.95 million in credit for every €10 million worth of T-bills lodged as collateral.
However, the newspaper said this DBRS rating normally applies to long-term paper only and not to short-term T-bills.
Asked why this is an acceptable rating for guarantees on loans to Spanish banks, the ECB said this was in line with rules applicable since 1999.
However, Irish sovereign bonds, also rated “A (low)” by DBRS, are considered riskier by the ECB and are subject to the 5.5 per cent premium.
“The Irish central bank confirmed twice that the rating decision taken was correct,” said the newspaper.
The newspaper suggested that more than €13 billion of Spanish bonds are ineligible as collateral under ECB rules.
An ECB spokesperson said yesterday the bank would “look into the matter of possible inconsistencies in applying the collateral rules”.
