New ECB €750 billion Pandemic Emergency Purchase Programme (PEPP)

Last updated: 27 March 2020

On 18 March 2020 after an evening meeting of its Governing Council, the ECB announced the launch of a new temporary asset purchase programme of private and public sector securities to counter the serious risks to the monetary policy transmission mechanism and the outlook for the euro area posed by the outbreak and escalating diffusion of the coronavirus, COVID-19. The ECB has since published a Decision and Questions and Answers outlining the PEPP further. Purchases under the PEPP began on 26 March 2020.

Key points the Governing Council of the ECB decided were as follows:

  • The new PEPP has an overall envelope of €750 billion. Purchases will be conducted until the end of 2020 and include all the asset categories eligible under the ECB’s existing asset purchase programme (APP) [1] . The Decision clarified that purchases under the PEPP will be separate from, and in addition to, purchases carried out under the APP. Net asset purchases under PEPP will be terminated once the ECB judges that the coronavirus Covid-19 crisis phase is over, but in any case not before the end of 2020.
  • The ECB acknowledges that the PEPP has been established due to the current exceptional, fast-evolving and uncertain circumstances and therefore requires a high degree of flexibility in its design and implementation compared with the APP.  Consequently it notes that its monetary policy objectives are not identical to that of the APP.
  • To qualify for the PEPP, the eligibility criteria under the APP for the relevant asset class will need to be fulfilled, save for relaxation of the requirements in respect of Greek Government bonds and maturity requirements in respect of public sector securities (both discussed below).
  • The residual maturity of public sector securities purchased under the PEPP ranges from 70 days up to 30 years and 364 days – this allows public sector securities with maturities shorter than those purchased under the existing PSPP to be purchased under the PEPP.
  • For private securities eligible under the CSPP, the maturity range is from 28 days up to 30 years and 364 days. For ABSPP and CBPP3-eligible securities, no maturity restrictions apply.
  • A waiver of the eligibility requirements for securities issued by the Greek government will be granted for purchases under the PEPP. This is the first time since the Greek financial crisis.
  • For the purchases of public sector securities, the benchmark allocation across jurisdictions will continue to be the capital key of the national central banks. At the same time, purchases under the new PEPP will be conducted in a flexible manner. This allows for fluctuations in the distribution of purchase flows over time, across asset classes and among jurisdictions.
[1] The APP comprises four separate programmes: (i) the corporate sector purchase programme (CSPP); (ii) the public sector purchase programme (PSPP), (iii) the asset-backed securities purchase programme (ABSPP) and (iv) the third covered bond purchase programme (CBPP3).
The ECB has confirmed it is committed to playing its role in supporting all citizens of the euro area through this extremely challenging time. To that end, the ECB will ensure that all sectors of the economy can benefit from supportive financing conditions that enable them to absorb this shock. This applies equally to families, firms, banks and governments.
 
The ECB’ has adopted a flexible approach to the ongoing COVID-19 outbreak. The ECB has confirmed it will do everything necessary within its mandate and 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.
 
The ECB also noted that to the extent that some self-imposed limits might hamper action that the ECB is required to take in order to fulfil its mandate, it will consider revising them to the extent necessary to make its action proportionate to the risks faced. The ECB will not tolerate any risks to the smooth transmission of its monetary policy in all jurisdictions of the euro area.
 

Expansion of CSPP

In addition, on 18 March the ECB announced the range of eligible assets under the corporate sector purchase programme (CSPP) will be expanded to include non-financial commercial paper, making commercial paper of sufficient credit quality eligible for purchase under the CSPP.
 
The ECB has confirmed that this expansion will begin on 27 March 2020 and that securities that have an initial maturity of 365/366 days or less and a minimum remaining maturity of at least 28 days will be eligible under the CSPP. The six-month minimum remaining maturity requirement will continue to apply for marketable debt instruments with an initial maturity of at least 367 days.
 
In order to be eligible, the commercial paper must fulfil the CSPP eligibility requirements (including, amongst others, as to currency, credit rating and ECB eligibility criteria pursuant to Part 4 of Guideline (EU) 2015/510) and be issued by a CSPP-eligible entity (i.e. a non-bank corporation established in the euro area). Furthermore, a commercial paper security must have a minimum outstanding issuance amount of EUR 10 million.
 
For further details, see the ECB’s FAQs.
 
Collateral Standards
 
Finally, the ECB announced on 18 March 2020 that collateral standards will be eased by adjusting the main risk parameters of the collateral framework. In particular, the ECB will expand the scope of Additional Credit Claims (ACC) to include claims related to the financing of the corporate sector to ensure that counterparties can continue to make full use of the Eurosystem’s refinancing operations.