INBS and the ECB

Today’s story about INBS issuing €4 billion in government-guaranteed debt effectively to itself (i.e. issuing it, then keeping it on the balance sheet to use for repo with the ECB) seems a bit strange. Indeed, normally the ECB doesn’t allow this kind of thing.  Page 39 of its eligible collateral documentation contains the following guideline:

Irrespective of the fact that a marketable or nonmarketable asset fulfills all eligibility criteria, a counterparty may not submit as collateral any asset issued or guaranteed by itself or by any other entity with which it has close links.

The INBS issue seems to be ok, however, because of the following qualification:

The above provision on close links does not apply to: (a) close links between the counterparty and the public authorities of EEA countries or in the case where a debt instrument is guaranteed by a public sector entity which has the right to levy taxes.

So the government guarantee appears to be what allows INBS to do this.