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Amendments to "Guidelines on Eligible Collateral"

(For immediate release)

January 16, 2002
Bank of Japan

At the Monetary Policy Meeting held today, the Policy Board of the Bank of Japan decided to amend"Guidelines on Eligible Collateral" (Policy Board Decision on October 13, 2000) as shown in Attachment with a view to strengthen money market operations. The decision was made in accordance with "Change in the Guideline for Money Market Operations", which was decided at the Monetary Policy Meeting held on December 19, 2001 and immediately announced.

Following today's decision, the Bank will start to accept, on the date no later than February 28, 2002, asset-backed commercial paper (ABCP) as eligible collateral and as eligible asset for commercial paper (CP) purchasing operations under repurchase agreements. Also, the Bank will start to accept from the middle of March 2002 at the latest asset-backed securities backed by mortgage loans and cash flows generated from real estate as eligible collateral.


Attachment

Amendments to"Guidelines on Eligible Collateral"

  • Paragraph 2 (3) shall be amended as below.

(3) Utilizing Market Information

To utilize market mechanism, the Bank shall make effective use of market information, such as ratings by rating agencies in assessing the eligibility of collateral, market prices in calculating collateral prices, and public information in evaluating the creditworthiness of corporate bonds, bills (including commercial paper other than asset-backed commercial paper), loans on deeds (hereinafter collectively referred to as"corporate debt obligations"),and asset-backed securities, and asset-backed commercial paper.

  • Table 1 shall be amended as below.

Table 1

Categories of Collateral and Collateral Prices

1.-14. (No change)

(Special Provision)

Among the collateral listed from 1 to 9 above, bonds whose principal balance may decrease due to prepayments before the final maturity date such as pass-through bonds;
85% of outstanding principal balance
  • Table 2 shall be amended as below.

Table 2

Eligibility Standards for Each Category of Collateral
Collateral Category Eligibility Standard
Government Bonds | Foreign Government Bonds
International Financial Institution Bonds
(No change)
Bills (Including Commercial Paper) Bills other than asset-backed commercial paper Bills satisfying the following requirements:
  1. (1) Bills deemed appropriate in light of relevant conditions including the creditworthiness of an obligor;
  2. (2) Bills with a residual maturity up to of 1 year.
  Asset-backed commercial paper Asset-backed commercial paper (hereinafter referred to as"ABCP") satisfying the following requirements:
  1. (1) Creditworthiness of specific assets, etc.Receivables from specific assets (which constitute original sources for repayment) should be deemed sufficient for repayment, in light of the creditworthiness of specific assets and any supplementary means to enhance their creditworthiness.
  2. (2) Structure of ABCPThe structure of ABCP should be deemed sufficient to satisfy the relevant requirements including the followings.
    1. (a) True saleIf specific assets are transferred from sellers to such persons as SPCs, such transfer should be one that is deemed valid even in insolvency proceedings such as bankruptcy proceedings of sellers.
    2. (b) Bankruptcy-remotenessNecessary measures should be taken to prevent insolvency proceedings or the dissolution of SPCs, including measures to restrict the power of sellers(p), etc, to file bankruptcy petitions against SPCs.
    3. (c) Measures for the collection of receivables from specific assetsIf the collection of receivables from specific assets is conducted by those other than an SPC, necessary measures should be prepared for cases when collection cannot be conducted because of insolvency of proceedings such as bankruptcy proceedings against those conducting collection.
  3. (3) Rating of ABCPABCP should be rated a-1 by an eligible rating agency.
  4. (4) Residual maturityA residual maturity of ABCP should be no longer than 1 year.
Loans on Deeds (No change)
Special Provision
(Special Provision) Among the collateral listed above, bonds whose principal balance may decrease due to prepayments before the final maturity date, such as pass-through bonds, should be those issued in the last 5 years, and satisfy the eligibility standards for the corresponding collateral category.

(Supplementary Provision)

These amendments shall become effective on a day designated by the Governor, which shall be no later than March 15, 2002.