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ECB’s Constancio Rebuffs Report Spain Violated Debt Rules

November 05, 2012

European Central Bank Vice President Vitor Constancio downplayed a report that the Bank of Spain violated collateral rules when it assessed the quality of assets pledged by Spanish banks in return for ECB loans.

The asset valuations under question were “much, much lower” than those reported and the issue presented no concern because the amount available in the pool of capital far outstripped liquidity the banks drew, Constancio told reporters yesterday in Mexico City after a Group of 20 finance meeting.

“The whole question had no practical implications whatsoever and no costs or losses to anyone,” the No. 2 ECB official said. ‘The issue has been completely settled, corrected, overcome.’’

German newspaper Die Welt reported 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 ($21.2 billion) of loans they shouldn’t have if quality rules had been strictly followed.

The Bank of Spain said yesterday it had correctly applied the collateral rules. The discount on Spanish debt pledged as collateral is based on the credit rating of DBRS Inc., said a Bank of Spain spokesman who asked not to be named in line with the central bank’s policy.

Toronto-based DBRS rates debt issued by the Spanish government at ‘A Low,’ its seventh-highest investment-grade rating. That’s two steps higher than Fitch Ratings and three steps higher than Moody’s Investors Service and Standard & Poor’s. The ECB takes smaller discounts on securities with an A- rating, according to the central bank’s website.

The Bank of Spain yesterday applied a valuation of 95.067 percent to 2 billion euros of Spanish treasury bills due 2014, according to the Madrid-based central bank’s website. That is lower than the 96.66 percent closing price of the securities, according to Bloomberg prices.

The ECB applies a 1.5 percent discount to zero-coupon government debt with a residual maturity between one or three years and a rating better than A minus.

To contact the reporters on this story: Patrick Donahue in Mexico City at; Simon Kennedy in Mexico City at

To contact the editor responsible for this story: James Hertling at

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