FT Alphaville " The (sovereign) mystery box Posted by Joseph Cotterill on Jun 21 14:54. Cookie Monster: It a horse! It a cow! It a ball! It a pogo stick! It a rump roast! It a moose! (Reuters) - The European Central Bank is discussing a medium-term plan to scrap rating rules on euro zone sovereign bonds and instead set their value when used as collateral in lending operations on its own internal assessment, central bank sources said... They'll also discuss permitting a broader range of collateral for (Spanish) banks, for sooner than the relatively far-off ratings idea, Reuters adds. You could say this is just the continuation of a trend. The ECB is already inclined to waive ratings criteria for sovereign collateral if this is in any danger of a major pro-cyclical downgrade. It did this for Greece, Ireland, and Portugal. In fact you could even say this might be one of the central bank's key tools for targeting repo markets. As for widening the collateral banks can pledge, eurozone central banks largely had to dispense with ratings when valuing "credit claim" assets (bank loans) for the 3-year LTROs, because these assets generally don't possess credit ratings. The flipside is that managing this collateral involves considerable haircuts. So what might go in the mystery box this time? Related link: The fourth rater - FT Alphaville The mystery box - FT Alphaville (2008) Safe enough to repo - Deus Ex Macchiato This entry was posted by Joseph Cotterill on Thursday, June 21st, 2012 at 14:54 and is filed under Capital markets. Tagged with collateral, credit ratings, ecb, Rating agencies, Sovereign debt.