Collateral management

In line with its statute, the Eurosystem provides credit only against adequate collateral. Adequate collateral encompasses marketable assets and/or non-marketable assets that fulfil the Eurosystem’s eligibility 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 mobilise eligible marketable assets as collateral, counterparties must transfer such assets to an account in an eligible securities settlement system (SSS). Assets not issued in the central securities depository operating the eligible SSS can also be held there if an eligible 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 an eligible triparty agent (TPA) to deliver collateral to an account in an eligible SSS. 

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 the market 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 the Single Collateral Management Rulebook for Europe (SCoRE).

Documentation

The document Collateral 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 the guideline on the management of collateral in Eurosystem credit operations.