Collateral management
In line with itsstatute, the Eurosystem provides credit only against adequate collateral. Adequate collateral encompasses marketable assets and/or non-marketable assets that fulfil the Eurosystem’seligibility criteria (eligible assets).
Eligible counterparties may obtain credit from the central bank of the country in which they are based – their home central bank (HCB) – by mobilising eligible assets as collateral. The process by which these assets are mobilised (transferred) to a counterparty’s HCB, and any subsequent handling of the collateral until it is given back to that counterparty, is referred to as collateral management.
Mobilising collateral
The Eurosystem has put in place a series of arrangements to ensure that all eligible assets, whether marketable or non-marketable, can be mobilised by eligible counterparties, regardless of where the assets or counterparties are situated.
Marketable assets
To mobiliseeligible marketable assets as collateral, counterparties must transfer such assets to an account in aneligible securities settlement system (SSS). Assets not issued in the central securities depository operating the eligible SSS can also be held there if aneligible link exists from the eligible SSS to another SSS.
As eligible links do not exist between all SSSs, national central banks (NCBs) also act as custodians (correspondents) for each other for marketable assets accepted in their domestic SSSs. This arrangement is known as the correspondent central banking model (CCBM).
Counterparties may also use the triparty collateral management services of aneligible triparty agent (TPA) to deliver collateral to an account in an eligible SSS.
Furthermore, eligible counterparties with securities accounts and dedicated cash accounts inTARGET2-Securities (T2S) can make use ofT2S auto-collateralisation which is an automated intraday credit facility offered by the Eurosystem to facilitate the settlement of securities in T2S. Details on the benefits, conditions and functioning of T2S auto-collateralisation are available in thisdocument.
Non-marketable assets
Eligible non-marketable assets, given their specific characteristics, cannot be transferred through an SSS or by using an eligible TPA. Accordingly,Eurosystem procedures have been established to facilitate their mobilisation.
In the case of credit claims, where the law governing the credit claim is not the law of the counterparty’s HCB, the HCB may opt to use the CCBM to mobilise these credit claims. The NCB of the country whose law governs the credit claim will act as correspondent central bank (CCB). Counterparties must follow the legal and procedural requirements specified in the CCB’s terms and conditions.
Market practices
Market-specific information relevant to the mobilisation of marketable and non-marketable assets, such as account numbers and legal and procedural requirements, can be found in themarket practices.
Managing collateral
Collateral mobilised by counterparties is held in a collateral pool. The total value of this pool must be equivalent to or greater than the counterparty’s outstanding credit (including accrued interest). If the total value of the collateral pool falls below this amount, counterparties must mobilise additional collateral to cover the deficit (margin call).
NCBs, or a designated third party (an eligible TPA), are responsible for the daily management of the assets mobilised as collateral. Daily tasks include processing mobilisation and demobilisation instructions, valuing collateral and processing corporate events.
To contribute to the efficiency and harmonisation of collateral management across the financial market, the Eurosystem follows the relevant collateral management standards set out in theSingle Collateral Management Rulebook for Europe (SCoRE).
Documentation
The documentCollateral management in Eurosystem credit operations – information for Eurosystem counterparties provides Eurosystem counterparties with information on the key processes, procedures and arrangements involved in the mobilisation and management of collateral in Eurosystem credit operations.
The accompanying legal framework for the mobilisation and management of collateral is set out in theguideline on the management of collateral in Eurosystem credit operations.