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Draghi Says Mistake in Collateral Use Didn’t Have Any Impact

European Central Bank President Mario Draghi said a mistake in applying collateral rules on Spanish treasury bills didn’t have any impact on the amount of money banks borrowed.

“Nobody received more than they should have received because of this mistake,” Draghi told reporters in Frankfurt today. “The impact of this is zero but we take this mistake very seriously.” The Eurosystem Audit Committee will assess the implementation of the ECB’s collateral framework across the region, he said.

The Bank of Spain had based its credit-quality assessment of Spanish treasury bills on the ‘A Low’ sovereign rating issued by DBRS Inc. That’s two steps higher than Fitch Ratings and three steps higher than Moody’s Investors Service and Standard & Poor’s. It’s also higher than the ratings the three firms apply to individual bills issued by Spain.

According to ECB rules, issue ratings of securities pledged as collateral take priority over issuer ratings. The ECB takes smaller haircuts on securities with an A-rating, according to the central bank’s website.

German newspaper Die Welt reported on Nov. 5 that Spanish treasury bills used as collateral in refinancing operations only partially fulfilled ECB requirements and banks received as much as 16.6 billion euros ($21 billion) of loans they shouldn’t have if quality rules had been strictly followed.

ECB Vice President Vitor Constancio said on Nov. 6 that DBRS had extended its long-term sovereign rating to the treasury bills in question.

“Now it has clarified, which means that the issue has been completely settled, corrected, overcome,” Constancio said, adding that the asset valuations under questions were “much, much lower,” and didn’t cause “costs or losses to anyone.”

Draghi said the Governing Council has nevertheless asked the Audit Committee, which is chaired by Finnish central bank governor Erkki Liikanen, to investigate the issue.

“We will have an initial assessment of this at our next Governing Council and then we discuss whether further analysis or further action is needed,” he said.

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