Collateral

General information

To collateralise all credit operations, the Eurosystem requires counterparties to provide adequate eligible assets in accordance with Article 18.1 of the Statute of the European System of Central Banks (ESCB). Assets need to fulfil a number of criteria to be accepted as eligible collateral by the Eurosystem. 

The eligibility criteria are outlined in Part Four of Guideline (EU) 2015/510 of the European Central Bank of 19 December 2014 on the implementation of the Eurosystem monetary policy framework (ECB/2014/60), as last amended, and are reviewed and updated on a regular basis or as required.

Implementation of monetary policy in the euro area is based on a relatively broad collateral framework that is generally uniform across the Eurosystem. This allows eligible assets to be used on a cross-border basis throughout the Eurosystem. However, the Eurosystem reserves the right to exclude individual assets from use as collateral for credit operations at any time. Furthermore, the eligibility of assets is, in addition to other specific criteria, a prerequisite for their purchase under the monetary policy asset purchase programmes.

Eligible assets can be subdivided into marketable assets and non-marketable assets, though there is not normally any difference between the two categories in terms of their quality and suitability for individual credit operations.

Marketable assets

Uncovered bonds, covered bonds (Pfandbriefe) and asset-backed securities (ABSs) are asset types that generally fall within the collateral framework. The pool of eligible issuers for marketable assets comprises central banks of Member States, public sector entities, agencies, credit institutions, (non-)financial corporations, and multilateral development banks and international organisations. Aside from the euro, the group of eligible currencies includes all predecessor currencies of the euro.

Responsibility for assessing whether assets qualify as eligible lies with the national central banks (NCBs) of the Eurosystem. For marketable assets, the NCB in the jurisdiction where the assets are listed conducts the eligibility assessment. Assets classified as eligible by NCBs are added to the list of eligible marketable assets, which is updated on the ECB’s website every business day at 18:15 CET and is valid for the next business day.

Marketable assets that counterparties of the Eurosystem actually submit as collateral only make up a small part of the total list of marketable assets, however.

Non-marketable assets

Non-marketable assets accepted by the Eurosystem include credit claims of counterparties. The Eurosystem defines a credit claim as a debt obligation of a debtor vis-à-vis a counterparty. This also includes borrowers’ note loans (Schuldscheindarlehen). The pool of eligible debtors and guarantors includes non-financial corporations, public sector entities, and multilateral development banks and international organisations, which means the pool of potentially eligible debtors is smaller than the group of eligible issuers of marketable assets.

Risk control measures

In order to mitigate risk, the Eurosystem applies valuation haircuts and variation margins to eligible assets. Valuation haircuts vary depending on the type of collateral, residual maturity, credit quality and coupon structure.

To put an appropriate value on marketable assets, the Eurosystem operates a system known as the Common Eurosystem Pricing Hub (CEPH), which provides the NCBs with a unique price per eligible marketable asset per business day for use across the Eurosystem. Market prices of assets are collected and checked for quality to compute this final Eurosystem price. In the absence of reliable market prices, the CEPH calculates a theoretical price based on internal mathematical models. Collateral values of marketable assets are calculated on the basis of this final Eurosystem price, subject to the applicable haircut.

The collateral value of non-marketable assets, on the other hand, is calculated based on their outstanding amount, with the relevant haircut applied.

Eligible assets must furthermore satisfy the high credit standards laid down in the Eurosystem Credit Assessment Framework (ECAF). To assess the credit quality of eligible assets, the Eurosystem takes into account information from one of the following sources: external credit assessment institutions’ (ECAI) systems, NCBs’ in-house credit assessment systems, or counterparties’ approved internal ratings-based systems. Those sources must meet certain criteria to be included by the Eurosystem in the ECAF. In principle, the credit quality threshold for eligible assets corresponds to a BBB- rating. The Eurosystem considers a probability of default (PD) of 0.4% over a one-year horizon as being equivalent to this threshold. Generally speaking, credit quality requirements for ABSs are higher: a rating of A- (equivalent to a PD of 0.1%), and this must furthermore be confirmed by at least two different accepted ECAI systems.

The Eurosystem thus has two lines of defence against losses from the default of a monetary policy counterparty: first, the financial soundness requirement for the counterparty itself and second, the quality of the eligible assets. This is why it is not generally possible for a Eurosystem counterparty to submit any assets issued or guaranteed by itself or by an entity with which it has close links. Exceptions do exist for covered bonds, which need to satisfy additional requirements, and for assets where close links exist between the counterparty and a public sector entity that has the right to levy taxes. Own-use covered bonds are subject to additional valuation haircuts. Unsecured debt instruments issued by credit institutions and their closely linked entities are another special case. Only a limited volume of these unsecured bank bonds (UBBs) can be submitted by counterparties as collateral.

Temporary measures

Since 2008 and until further notice, marketable debt instruments denominated in US dollars, pounds sterling or Japanese yen and issued in the euro area are also deemed eligible provided they satisfy all other eligibility criteria.

In addition, the credit quality threshold for certain ABSs has been temporarily reduced to BBB- since 2012. 

Since 2011, NCBs have been allowed to temporarily accept additional credit claims (ACCs) as monetary policy collateral provided they meet certain (minimum) conditions. Particular legal and operational circumstances in the different jurisdictions are taken into account by country-specific ACC regimes.

Temporary collateral easing measures were adopted in April 2020 in response to the COVID-19 pandemic. The easing measures adopted in this context will be gradually phased out in three steps as from July 2022 in line with the Decision of the Governing Council of the ECB of 23 March 2022 (see ECB press release below). With the introduction of the newly calibrated haircuts as of 29 June 2023, the end of the grandfathering arrangement for marketable assets and the complete reversal of the temporary adjustments made to the UBB concentration limit, the minimum size threshold for domestic credit claims, which was temporarily lowered to zero, remains in force for the time being.

In a final step, the ECB will in principle phase out the remaining pandemic collateral easing measures in March 2024, including particularly the temporary and currently still applicable expansions regarding the acceptance of ACCs introduced during the pandemic period. This step will be preceded by a comprehensive review of all ACC frameworks by the Eurosystem, taking into account collateral needs for the outstanding TLTRO III operations until December 2024. 

In the first instance, the phasing out of the measures will not apply to Greek government bonds (GGBs), which – even if they do not satisfy the Eurosystem’s minimum credit quality requirements – may still be accepted as collateral by NCBs as long as they remain eligible under the PEPP.