Eligibility for central banks

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Eligibility for a central bank (also: collateral eligible for a central bank ) is understood in banking as the recognition of certain financial instruments as collateral for loans by the European System of Central Banks (ESCB).

General

Commercial banks receive on demand from their central bank and / or the ESCB central bank money . This is an important part of the money supply . As part of monetary policy , the central banks can control the central bank money and thus the money supply. The central banks' open market and lending business are an important set of instruments . For central banks, open market operations are the most important instrument for supplying liquidity to the banking sector. In the context of open market and credit operations, the ESCB and the national central banks can, in accordance with Article 18.1 of the Statute of the ESCB and the ECB (ESCB Statute), claims and marketable securities as well as precious metals finally ( via spot or forward transactions ) or within the framework of repurchase agreements, buy and sell or enter into corresponding loan transactions and conclude temporary credit transactions with banks and other market participants . To this end, they either transfer ownership of these assets (in the case of final purchases or repurchase agreements) or use them as pledge, assignment or other comprehensive security interest (in the case of secured loans). According to Article 18.2 of the ESCB Statute, it is the responsibility of the ESCB to establish principles for both its own open market and credit operations and those of the national central banks.

history

Already the Reichsbank Act of March 14, 1875 saw the Lombard credit of the Reichsbank before. The Pfandbrief has been able to be lombarded since 1891 , which improved its ability to circulate. Through the Reichsbank Act of August 1924, the Lombard loans, which had previously been excluded from all cover purposes, were included in the special cover of 40% that is to be held for the liabilities due on demand. Since June 1939 debt register claims were considered eligible for bombardment. The Bundesbank Act (BBankG), which came into force in July 1957 , provided for in Section 19 (1) BBankG a. F. as part of the Lombard policy of the Deutsche Bundesbank under the term Lombard capability, the recognition of certain assets as collateral for Lombard loans granted by it. These collateral securities were to be provided by the commercial banks from their own assets.

With the transition of monetary and credit policy to the European Central Bank (ECB) in June 1998, a standardization of the lending of loan collateral was also pending. The measures on the way to a uniform list of collateral began at the end of May 2005. Each national central bank has drawn up guidelines or principles for its collateral framework, which indicate which assets it will accept as collateral. This so-called eligible collateral was divided into two categories until December 2006:

  • Category 1 : marketable debt instruments that meet the uniform eligibility criteria established by the Governing Council and applicable across the euro area;
  • Category 2 : marketable and non-marketable assets that are of particular importance for the national financial markets and banking systems and for which the national central banks set the eligibility criteria in accordance with minimum ECB standards.

In January 2007 the ECB introduced a uniform list of collateral. In October 2008, the ECB decided to temporarily lower the creditworthiness threshold for eligible collateral until December 2009. The creditworthiness threshold was lowered from A- to BBB- (see rating code ) due to the collapse of interbank trade . In this way, the ECB simplified the refinancing of credit institutions in the financial crisis from 2007 . Further extensions followed beyond 2010, the credit rating threshold BBB- still applies today.

In June 2012, the Governing Council recognized ABS for securitization of car - leasing - and consumer loans as well as commercial mortgage ABS collateralized (so-called commercial mortgage-backed securities , CMBS), which harmonized the time of issue and at any time thereafter by the The Eurosystem's rating scale has a second-best rating of at least “A” as eligible. These ABS are subject to a valuation discount ( lending limit ) of 16%. Moreover, since then residential mortgage backed securities (RMBS) and collateralized by loans to small and medium-sized enterprises (SMEs) securities recognized. RMBS, securities backed by loans to SMEs and ABS for securitizing car, leasing and consumer loans are subject to a valuation discount of 26%, for CMBS a valuation discount of 32% applies.

Lending business

In the lending business of the ECB and the central banks, there is the Lombard loan and the intraday loan. The main refinancing instrument in the Eurosystem is the Lombard loan, while in the case of intraday credit, the central banks provide the commercial banks with working credit that they need for payment transactions ( TARGET2 ). In these lending transactions, sufficient collateral must be provided for central bank loans. A central bank grants secured loans to the banking sector essentially in order to maintain the soundness of its financial assets. The collateral is intended to protect the Eurosystem from the risk of financial losses in its lending operations.

Collateral directory

The standard criteria for determining the eligibility of collateral for monetary policy operations of the Eurosystem are set out in Annex I to Guideline ECB / 2011/14 of September 2011. The collateral register sets requirements with regard to the type and quality of collateral.

  • Types of collateral : In the list of collateral, the Eurosystem lists the loan collateral that can be provided as collateral for liquidity-providing operations. It includes assets that can be used as collateral for loans. These can include liquid, marketable interest-bearing securities such as government and corporate bonds , stocks and equity-like financial instruments, municipal loans , corporate finance or consumer loans, as well as assets such as real estate and other assets . In addition to marketable collateral (e.g. shares, bonds ), non-marketable securities (e.g. credit claims ) are also accepted; both must meet uniform creditworthiness requirements. Non-marketable collateral includes time deposits from credit institutions, loan claims, and retail mortgage-backed debt instruments (RMBD). Marketable and non-marketable assets differ in that the Eurosystem only accepts marketable assets for final purchases or sales.
When lending to eligible collateral, there are valuation haircuts (lending limits) in order to take liquidity and market risks into account. The size of the haircuts depends on the liquidity characteristics of a security, the issuer group, the type of security, the remaining term of the security and the type of coupon.
  • The quality of the collateral is expressed in a creditworthiness threshold because the eligible collateral must achieve a certain minimum rating . The credit rating threshold is BBB- (“investment grade”). Further qualitative characteristics are:
    • The registered office of the issuer must be in a state of the European Economic Area or another G10 state;
    • The papers must be in the European Economic and Monetary Union ;
    • Denomination in euros or a former currency of the European Economic and Monetary Union .
      Although a marketable asset fulfills all eligibility criteria, a commercial bank may not use when by itself or any other place to which it maintains "close links" ( "close links"), they issued was or guaranteed. "Tight Links" means a situation in which the bank is connected to an issuer / debtor / guarantor of eligible collateral by the fact that
      • the bank, either directly or indirectly through one or more other companies, holds a share of at least 20% in the equity of the issuer / debtor / guarantor;
      • the issuer / debtor / guarantor - either directly or indirectly through one or more other companies - holds a stake of at least 20% in the bank's capital or
      • a third party - either directly or indirectly through one or more companies - holds more than 20% of the capital of the bank and more than 20% of the capital of the issuer / debtor / guarantor.
Exceptions to this apply to all covered Pfandbriefe .

The collateral must be legally transferred to the central bank, for example in the form of a pledge or assignment as security , the latter, for example, when transferring credit claims at the KEV (credit claims submission and administration).

Effects on the money market

Although the main reason for the central banks' request for eligible collateral is to protect the Eurosystem against financial losses due to the insolvency of the collateral provider , approval as eligible collateral also affects the liquidity of the money market . Because every expansion of the central bank eligibility to other groups of bank balance sheet assets , the lowering of the credit rating threshold or the reduction of the valuation discounts improves the liquidity of the banks. Conversely, the stock of eligible collateral, the increase in creditworthiness requirements or the increase in haircuts limit the refinancing options of the commercial banks. This was shown by the easing of the eligibility criteria after the Lehman Brothers bankruptcy in September 2008, when the collapse of interbank trading meant that commercial banks were dependent on central bank liquidity and central banks lowered the creditworthiness threshold for collateral.

The approval of riskier types of collateral and certain ratings indirectly induces commercial banks to acquire or hold such financial instruments, while non-approved types and ratings are more likely to be avoided as new business ( moral hazard ). The ECB's Lombard policy thus has an indirect influence on the banks' portfolio policy . The ECB guidelines speak of "high creditworthiness requirements", but the "investment grade" is a justifiable rating level. The Eurosystem thus specifies a credit rating as high, which is objectively questionable because of the risk of negative rating migration , but which banks use as a benchmark for creditworthiness in their lending business. Since central bank eligibility is the only alternative to credit trading , it is regarded as the most important active source of refinancing.

Web links

Individual evidence

  1. ↑ Anna Bitterich, The banking Lombard business , 1932, p. 107.
  2. ↑ a b Deutsche Bundesbank, The creation of a uniform directory for eligible collateral in the euro area , April 2006 monthly report, p. 32 f.
  3. ↑ a b European Central Bank, The Framework for Collateral of the US Central Bank System, the Bank of Japan and the Eurosystem , Monthly Report October 2007, p. 93 f.
  4. ↑ Deutsche Bundesbank, 2008, p. 19.
  5. ↑ Deutsche Bundesbank, 2010, p. 3.