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ECB to stop accepting senior nonpreferred debt as collateral

The European Central Bank will stop accepting as collateral for its lending operations subordinated, unsecured bank bonds issued by credit institutions, investment companies or their closely linked entities.

The new rules are expected to apply in the first quarter of 2018 and pertain to bonds subordinated on a contractual, structural or statutory basis, such as those issued by bank holding companies. Existing bonds that are eligible at present but do not meet the new requirements will not be accepted after Dec. 31, 2018, the regulator noted.

The change means that new-style senior nonpreferred debt of the sort legislated for in several European countries is no longer eligible as collateral. Older-style senior unsecured bonds will remain eligible, as will bonds issued by agencies eligible for the ECB's public sector purchase program and government-guaranteed bonds.