The European Central Bank, ECB, has published in the Official Journal of the European Union on November, 25th, 2008, ECB/2008/18 Guideline on temporary changes to the rules relating to eligibility of collateral. This new Guideline aims to widen the eligibility criteria for collateral, as laid down in Annex I to Guideline ECB/2000/7, the so called “General Documentation”.

The Governing Council of the European Central Bank (ECB) decided on October, 15th, 2008 to temporarily widen the rules relating to the eligibility of collateral for the operations of the Eurosystem. This decision aims to enhance on a temporary basis the provision of liquidity to counterparties for Eurosystem monetary policy operations.

Eligible collateral admission according to ECB/2008/18 Guideline

• Collateral denominated in US dollars, pounds sterling or Japanese yen will constitute eligible collateral for the purposes of Eurosystem monetary policy operations, if they are issued and held/settled in the euro area, and the issuer is established in the European Economic Area. An additional haircut of 8 % shall be imposed by the Eurosystem on all such marketable debt instruments.
• Syndicated loans will have to comply with Chapters 6.2.2 and 6.3.3 and Appendix 7 of the General Documentation, to be eligible collateral. Special rules are provided for syndicated loans governed by the laws of England and Wales which have been accepted by November, 30th, 2008.
• Debt instruments issued by credit institutions, which are traded on certain non-regulated markets as specified by the ECB, will constitute eligible collateral for the purposes of Eurosystem monetary policy operations. An additional haircut of 5 % shall be imposed by the Eurosystem on all such debt instruments.
• The Eurosystem’s minimum requirement for the assessment of the credit standard of assets eligible as collateral for the purposes of Eurosystem monetary policy operations will be a ‘BBB-’ equivalent credit assessment. An additional haircut of 5 % will be imposed by the Eurosystem on all eligible assets with a credit assessment below ‘A-’.
• Subordinated assets with adequate guarantees will be eligible collateral, when a financially sound guarantor provides an unconditional and irrevocable guarantee payable on first demand on these assets An additional haircut of 10 % will be imposed by the Eurosystem on all such assets, with a further 5 % valuation markdown in the event of a theoretical valuation.
• Fixed-term deposits as described in Chapter 3.5 of the General Documentation from eligible counterparties will be eligible as collateral for all refinancing operations of the Eurosystem.

In the event of any discrepancy between this Guideline and the General Documentation, as implemented at national level by the National  Central Banks (NCBs), the former will prevail. The NCBs will continue to apply all provisions of the General Documentation unaltered unless otherwise provided for in this Guideline.

The Guideline, addressed to NCBs of participating Member States, is into force sinde November, 25th, 2008, and will apply from December, 1st, 2008 until December, 31st, 2009.

Collaterals within EU Financial Markets Infrastructure

Collateral is the property (such as securities) provided by a borrower to a lender to minimise the risk of financial loss to the lender in the event of the borrower failing to meet comprehensively their financial obligations to the lender.

Within EU rules, Collateral Directive (2002/47/EC) aims to create a uniform EU legal framework to limit credit risk in financial transactions through the provision of securities and cash as collateral. The Directive reduces the formal collateral requirements and harmonise and clarify the collateral process at minimum level.