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Amendments to Guidelines on Eligible Collateral and establishment of Temporary Rules of Eligibility Standards for Asset-backed Commercial Paper

December 17, 2002
Bank of Japan

At the Monetary Policy Meeting held today, the Policy Board of the Bank of Japan decided to take following measures to secure smooth corporate financing.

  1. Acceptance of a broader range of loans on deeds as eligible collateral and changes in their collateral value ratios (amendments to Guidelines on Eligible Collateral)
    1. (1) Loans on deeds with original maturities of more than 5 years and up to 10 years shall be included as eligible collateral. Previously, only those with original maturities of up to 5 years were eligible.
    2. (2) Various collateral value ratios (ranging between 50% and 96%) shall be applied to loans on deeds depending on the types of debtors and the lengths of original maturities. Previously, the uniform collateral value ratio (80%) was applied to any types of eligible loans on deeds.
  2. Acceptance of a broader range of asset-backed commercial paper as eligible collateral (establishment of Temporary Rules of Eligibility Standards for Asset-backed Commercial Paper)
    Guidelines on Eligible Collateral stipulate that the debt obligations guaranteed by the Bank's counterparty financial institutions shall be ineligible, making most asset-backed commercial paper, which is usually accompanied by a backup line (liquidity/credit enhancement program), excluded from eligible collateral. Temporary Rules of Eligibility Standards for Asset-backed Commercial Paper, which make exceptions to the guidelines above, are established in order to broaden a range of asset-backed commercial paper as eligible collateral.

The Policy Board of the Bank also decided to include STRIPS government securities as eligible collateral (amendments to Guidelines on Eligible Collateral). STRIPS government securities are scheduled to be introduced in January 2003 when the laws and regulations concerned become effective.

Regarding the amended Guidelines on Eligible Collateral and Temporary Rules of Eligibility Standards for Asset-backed Commercial Paper, see Attachment 1 and 2 respectively.


Attachment1

Amendments to Guidelines on Eligible Collateral

Table 1 shall be amended as follows.

Table 1

Categories of Collateral and Collateral Prices

1. Government Bonds (excluding STRIPS)

A residual maturity of:

(1) Up to 1 year
99% of market price
(2) more than 1 year and up to 5 years
98% of market price
(3) more than 5 years and up to 10 years
96% of market price
(4) more than 10 years and up to 20 years
94% of market price
(5) more than 20 years
90% of market price

1-2. STRIPS

A residual maturity of:

(1) Up to 5 year
97% of market price
(2) more than 5 years and up to 10 years
95% of market price
(3) more than 10 years and up to 20 years
90% of market price
(4) more than 20 years
85% of market price

2.-10. (No change)

11. Loans on Deeds to Companies
80% of outstanding principal balance

An original maturity of:

(1) Up to 1 year
95% of outstanding principal balance
(2) more than 1 year and up to 3 years
87% of outstanding principal balance
(3) more than 3 years and up to 5 years
80% of outstanding principal balance
(4) more than 5 years and up to 7 years
65% of outstanding principal balance
(5) more than 7 years and up to 10 years (including maturities within 120 months after the month of issuance.)
50% of outstanding principal balance
12. Loans on Deeds to the Government's Special Account for the Allotment of Local Allocation Tax and Local Transfer Tax
80% of outstanding principal balance

An original maturity of:

Up to 1 year
96% of outstanding principal balance
(2) more than 1 year and up to 3 years
90% of outstanding principal balance
(3) more than 3 years and up to 5 years
85% of outstanding principal balance
(4) more than 5 years and up to 7 years
75% of outstanding principal balance
(5) more than 7 years and up to 10 years (including maturities within 120 months after the month of issuance.)
60% of outstanding principal balance
13. Loans on Deeds to the Deposit Insurance Corporation with Government Guarantee
80% of outstanding principal balance

An original maturity of:

(1) Up to 1 year
96% of outstanding principal balance
(2) more than 1 year and up to 3 years
90% of outstanding principal balance
(3) more than 3 years and up to 5 years
85% of outstanding principal balance
(4) more than 5 years and up to 7 years
75% of outstanding principal balance
(5) more than 7 years and up to 10 years (including maturities within 120 months after the month of issuance.)
60% of outstanding principal balance

(Special Provision - No change)

Table 2 shall be amended as follows.

Table 2

Eligibility Standards for Each Category of Collateral
Collateral Category Eligibility Standard
Government Bonds (including STRIPS) Ordinary government bonds without restriction on transferexcept for government bonds specifically designed for individual investors
Financing Bills | Bills Drawn by Companies and Special Purpose Companies (including Commercial Paper) (No change)
Loans on Deeds to Companies Loans on deeds satisfying the following requirements:
  1. (1) Loans on deeds to be deemed appropriate in light of creditworthiness of the debtor corporation and other relevant factors, including the fact that the corporation is rated A or higher by an eligible rating agency.
  2. (2) Loans on deeds with an original maturity of up to105years. Where an original maturity is longer than105years but the maturity date comes within12060months after the month of issuance, the loan is also considered to satisfy this requirement
Loans on Deeds to the Government's Special Account for the Allotment of Local Allocation Tax and Local Transfer Tax
Loans on Deeds to the Deposit Insurance Corporation with Government Guarantee
Loans on deeds with an original maturity of up to 105 years. Where an original maturity is longer than 105 years but the maturity date comes within 12060 months after the month of issuance, the loan is also considered to satisfy this requirement.
No change
(Special Provision) (No change)

(Supplementary Provision)

Among above amendments, those concerning Loans on Deeds shall become effective on December 27, 2002, and others shall become effective on January 6, 2003.


Attachment2

Temporary Rules of Eligibility Standards for Asset-backed Commercial Paper

  1. When assessing the eligibility of asset-backed commercial paper, the Bank shall not apply paragraph 5. of Guidelines on Eligible Collateral, which stipulates that the debt obligations guaranteed by the Bank's counterparty financial institutions and their affiliates shall be ineligible.
  2. When the Bank, with the view to maintain the soundness of its assets, deems it necessary to review the creditworthiness of specific assets and other procedures, the Bank may make exceptions to the rule set forth in paragraph 1.
  3. These rules shall become effective on the date designated by the Governor, which shall be no later than January 31, 2003. The rules shall be abolished at the end of March 2005.