Article 18.1 of the Statute of the European System of Central Banks (ESCB) requires that all Eurosystem credit operations (i.e. liquidity-providing operations) have to be based on adequate collateral.

The Eurosystem accepts a wide range of assets that can be used as collateral for credit operations. In fact, with the aim of protecting the Eurosystem from incurring losses in its monetary policy operations and of ensuring the equal treatment of counterparties, as well as of enhancing operational efficiency and transparency, underlying assets have to fulfil certain criteria in order to be eligible for Eurosystem monetary policy operations. Eligible assets which serve as collateral for monetary policy operations may also be used as collateral for intraday credit. The eligibility criteria for these assets are specified in Chapter 6 of the publication “The Implementation of Monetary Policy in the Euro Area: General documentation on Eurosystem monetary policy instruments and procedures”.

The Eurosystem developed a single framework for eligible assets also referred to as the “Single List”, which came into effect on 1 January 2007. The single framework comprises two distinct asset classes – marketable assets and non-marketable assets. The eligibility criteria for the two asset classes are uniform across the euro area.

For the purpose of ensuring that marketable and non-marketable assets meet the same standards, the Eurosystem Credit Assessment Framework (ECAF) has been set up which relies on different credit assessment sources. In the assessment of credit quality of eligible assets, the Eurosystem will take into account information from one of the following sources: external credit assessment institutions, national central banks (NCBs) in-house credit assessment systems, counterparties’ internal-ratings based systems or third-party providers’ rating tools. The credit quality threshold for eligible assets corresponds to a “single A” long-term rating. The Eurosystem considers a probability of default of 0.1% over a one-year horizon equivalent to this threshold.

All eligible assets are also subject to risk control measures in order to protect the Eurosystem against the risk of financial loss if these assets have to be realised due to the default of the counterparty. Currently, the Eurosystem applies valuation haircuts and variation margins as risk control measures.

Furthermore, Eurosystem counterparties may use eligible assets on a cross-border basis, i.e. they may obtain funds from the NCB of the Member State in which they are established by making use of assets located in another Member State.

Further information

Central Bank of Malta Directive No. 8 on the Documentation on Monetary Policy Instruments and Procedures. (3,023kb)

List of marketable assets fulfilling the eligibility criteria.

The operational and legal aspects concerning the cross-border use by non-domestic counterparties of credit claims governed by Maltese law. (105kb)

The operational and legal aspects concerning the cross-border use by domestic counterparties of credit claims governed by laws of euro area countries.