Frankfurt: Greek government bonds will attract an extra 5% penalty when banks use them as security for European Central Bank funds, an ECB spokesman said on Tuesday after Moody’s cut the country’s debt to junk status.
The extra ‘haircut´ means commercial banks will receive less money in exchange for Greek bonds than they would if they used government bonds from any other euro zone nation.
“A haircut will be applied, it will be an extra 5%,” an ECB spokesman said when asked by Reuters.
The ECB has a sliding scale for assessing the riskiness of assets, with sovereign bonds at one end and asset-backed securities at the other.
The Moody’s downgrade to Ba1 late on Monday means all three ratings agencies now assign Greek debt a credit rating in or below BBB territory, the threshold for the extra haircut.
The range of base haircuts goes from 0.5% to 20%, with add-ons of as much as 10%. All debt rated in BBB territory has an extra haircut of 5% at the moment and from January 2011 non-government debt in this category will attract a graded scale of haircuts.
The ECB said last month it would keep accepting Greek government bonds regardless of their credit rating, but haircuts announced in October 2008 still apply.