The European Central Bank (ECB) is the latest European body to take measures to stop the impact of COVID-19 (coronavirus) on the financial market.
A €759bn Pandemic Emergency Purchase Programme (P2PP) has been launched by the ECB. The asset purchase programme of private and public sector securities will help to combat risks on the monetary policy transmission mechanism and the European financial outlook during the pandemic.
Purchases will be conducted until the end of 2020 and will include all asset categories eligible under the existing asst purchase programme (APP). A list of these can be found here.
For purchases of public sector securities, benchmark allocation across jurisdictions will remain the capital key for the national central banks. Furthermore, purchases under the new PEPP will be made in a flexible manner to allow for fluctuations in the distribution of purchase flows over time, across asset classes and among jurisdictions.
There is a waiver of the eligibility requirements for securities issued by the Greek government for purchases under the PEPP.
The ECB stated it will end net purchases under the PEPP when it believes the coronavirus pandemic is over. However, it will not close it before the end of the year regardless of the virus’ status.
Other steps to be taken by the regulator include expanding the range of eligible assets under the corporate sector purchase programme (CSPP) to non-financial commercial paper, and the easing of collateral standards by altering risk parameters. The regulator will also expand the reach of its additional credit claims (ACC) to include claims related to financing of the corporate sector.
The regulator also said it will ensure all sectors of the economy will receive supportive financing and allow them to absorb shock.
In a release announcing the new programme, the ECB said, “The Governing Council will do everything necessary within its mandate. The Governing Council is fully prepared to increase the size of its asset purchase programmes and adjust their composition, by as much as necessary and for as long as needed. It will explore all options and all contingencies to support the economy through this shock.”
Last week, the European Securities and Markets Authority (ESMA) issued a temporary requirement on net short positions in traded shares as it seek additional measures to secure financial market in COVID-19 pandemic.
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