ECB Enhances Collateral Framework for Smoother Policy Implementation
The European Central Bank (ECB) has announced measures to align and enhance its collateral framework. This move aims to provide greater flexibility and risk efficiency. It represents a step towards reinforcing the temporary collateral easing measures introduced in response to financial crises.
The ECB's Governing Council has decided to include certain assets from the temporary measures into the general collateral framework as part of the efforts to transition to a single collateral list accessible to all counterparties in the euro area. This integration is consistent with the Council's intention to maintain a broader collateral coverage, as mentioned during the review of the ECB’s operational framework scheduled for March 13, 2024.
Assets now accepted as collateral under the general framework include asset-backed securities with a second-best credit quality rating of level 3, as well as marketable assets denominated in currencies such as the US dollar, British pound, and Japanese yen. Furthermore, after the development of a standardized framework, the internal credit assessment systems of national central banks will be recognized as a source of credit assessment.
The Governing Council has tasked Eurosystem committees with preparing for the integration of non-financial corporate loan pools into the general framework. This task, which includes the establishment of a risk control framework and technical requirements, will lead to further communication once completed.
At the same time, the ECB is terminating certain types of collateral eligible under temporary guidelines, such as loans to private individuals and mortgage loans, as well as loans denominated in foreign currencies and individual loans with a credit quality below level 3.
The ECB also plans to gradually withdraw temporary technical relaxations for additional loan claims, including those with partial public sector guarantees related to COVID-19.
Non-financial corporate loan pools and those with COVID-19-related guarantees will remain eligible under the temporary framework until at least the end of 2026, depending on the outcome of the preparatory work. However, national central banks have the discretion to terminate additional loan claim frameworks earlier if they choose.
The implementation of these changes will not begin before the fourth quarter of 2025 and will coincide with the next regular update of the relevant legal frameworks.
The ECB's Governing Council reaffirms its commitment to a broad collateral framework necessary for the smooth execution of Eurosystem credit operations and effective monetary policy. Detailed information regarding these changes will be communicated to relevant stakeholders by the respective national central banks.