Changes to the Eurosystem collateral framework to foster greater harmonisation

Prepared by Ioana Alexopoulou, Calogero Brancatelli, Diana Gomes, Daniel Gybas and Stephan Sauer

Published as part of the ECB Economic Bulletin, Issue 1/2025.

The collateral framework for Eurosystem credit operations is a key element of the ECB’s monetary policy implementation framework. Credit operations have always played a central role in meeting banks’ liquidity needs and steering the monetary policy stance, and the ECB has a statutory requirement to lend to banks and other counterparties only against adequate collateral.^[1]

Since the global financial crisis, the Eurosystem has operated a general collateral framework, which is permanent, and a temporary collateral framework, which comprises crisis-related collateral easing measures.^[2] The general framework applies fully harmonised eligibility criteria across the Eurosystem. The temporary framework consists of assets that do not satisfy the eligibility criteria of the general framework and have been introduced to address the increased collateral needs of counterparties at times of heightened financial stress. Some of these assets (e.g. additional credit claims (ACCs) and marketable debt instruments benefiting from a waiver of the minimum credit quality requirement) have been accepted as collateral under the temporary framework in a not fully harmonised manner at the discretion of national central banks (NCBs) and subject to the approval of the ECB’s Governing Council. Both collateral frameworks have evolved over time as part of the Eurosystem’s response to economic and financial market developments.

Some of the most significant changes to the collateral frameworks have been linked to supporting broad-based participation in longer-term refinancing operations (LTROs) and targeted longer-term refinancing operations (TLTROs). The ECB has accepted ACCs under the temporary framework since December 2011 as part of several measures aimed at supporting bank lending and money market activity, not least in the ECB’s first three-year LTROs (Chart A).^[3] ACCs were initially accepted by around one third of euro area NCBs, but almost all euro area NCBs started accepting ACCs following the announcement in April 2020 of pandemic collateral easing measures to support the significant recourse to TLTRO III.^[4] Eligibility expansions have generally been accompanied by the design of appropriate risk control measures.^[5] In March 2022 the ECB started to gradually phase out the pandemic collateral easing measures.^[6]

Chart A

Contribution of ACCs to mobilised collateral

(EUR billions, after valuation and haircuts)

On 29 November 2024 the Governing Council took a further step in the gradual phasing out of the temporary framework, aiming for a more harmonised, flexible and risk-efficient Eurosystem collateral framework.^[7] In line with the outcome of the recent review of the operational framework and to maintain a broad collateral framework, the Governing Council decided on a set of measures allowing the return to a harmonised list of collateral available to all counterparties irrespective of their location in the euro area.^[8] These decisions conform with the principles underlying the operational framework for implementing monetary policy and will thus ensure that the collateral framework remains appropriate as the Eurosystem balance sheet normalises.^[9]

To ensure a broad and flexible collateral framework, some “temporary” asset types will be incorporated into the general collateral framework. The following two asset types were already accepted throughout the Eurosystem under the temporary framework and will be integrated into the general framework: (i) asset-backed securities with a second-best rating of credit quality step 3 on the Eurosystem’s harmonised rating scale (a rating of BBB-) that fulfil the eligibility criteria currently stipulated in the temporary collateral framework;^[10] and (ii) certain marketable assets denominated in US dollars, pounds sterling or Japanese yen.^[11] In addition, a diversification of the Eurosystem’s accepted credit assessment sources will take place with the acceptance of NCBs’ statistical in-house credit assessment systems (S-ICASs) for credit claims in the general framework. These systems assess the creditworthiness of non-financial corporations using a quantitative approach and adhere to a harmonised framework.^[12] Most S-ICASs were initially introduced in response to the COVID-19 pandemic to contribute to a diversified collateral universe by focusing in particular on small and medium-sized non-financial entities as ACC debtors. The Governing Council also decided to launch further preparatory work on the future integration of pools of non-financial corporate credit claims into the general framework. This work will include developing an adequate risk control framework and specifying all necessary technical requirements.

To reduce complexity and heterogeneity in the Eurosystem collateral framework, and following the maturing of all TLTROs, other asset types that were accepted temporarily are to be phased out. These are: (i) loans to private individuals and pools of credit claims backed by real estate assets; (ii) individual credit claims with a credit quality below credit quality step 3, which is equivalent to a below investment grade rating; and (iii) foreign currency-denominated loans in US dollars, pounds sterling or Japanese yen. Furthermore, technical requirements related to these asset types, such as jurisdiction-specific credit quality assessment approaches, will be discontinued.

A further step towards the simplification of the Eurosystem collateral framework has been taken with the discontinuation of the eligibility of two specific asset types under the general framework. This concerns retail mortgage-backed debt instruments (RMBDs) and non-marketable debt instruments backed by eligible credit claims (DECCs). Their discontinuation is due to limited historical use and low demand compared to alternative ways of mobilising the underlying assets and allows a further simplification of the Eurosystem collateral framework.

With these changes, the Eurosystem collateral framework will continue to contribute to an effective, robust, flexible and efficient implementation of the ECB’s monetary policy. The changes will be implemented with the next regular update of the legal framework, but not earlier than the fourth quarter of 2025. In view of the upcoming preparatory work for the integration of pools of credit claims into the general framework, the eligibility of currently accepted pools of non-financial corporate credit claims under the temporary framework will be maintained until at least the end of 2026. The same applies for credit claims benefiting from a pandemic-related partial public sector guarantee, which will largely have matured by then and will eventually be phased out. In any case, the Governing Council will maintain a broad collateral framework to facilitate the use of Eurosystem credit operations by counterparties.