The Eurosystem credit assessment framework (ECAF) defines the procedures, rules and techniques which ensure that the Eurosystem requirement of high credit standards for all eligible assets is met.
In the assessment of the credit standard of eligible assets, the Eurosystem takes into account credit assessment information from credit assessment systems belonging to one of four sources, namely
Additionally, in the assessment of the credit standard the Eurosystem takes into account institutional criteria and features guaranteeing similar protection for the instrument holder such as guarantees.
|Credit assessment source||Credit assessment system / provider||Coverage|
|ECAI||DBRS||Eligible issuers / debtors / guarantors from EEA or non-EEA G10 countries|
|FitchRatings||Eligible issuers / debtors / guarantors from EEA or non-EEA G10 countries|
|Moody’s||Eligible issuers / debtors / guarantors from EEA or non-EEA G10 countries|
|Standard & Poor’s||Eligible issuers / debtors / guarantors from EEA or non-EEA G10 countries|
|ICAS||Banca d’Italia||Italian non-financial corporations|
|Banco de España||Spanish non-financial corporations|
|Banque de France||French non-financial corporations|
|Central Bank of Ireland||Mortgage-backed promissory notes issued by Irish credit institutions|
|Deutsche Bundesbank||German non-financial corporations|
|Oesterreichische Nationalbank||Austrian non-financial corporations|
|Banka Slovenije||Slovenian non-financial corporations|
|RT||Cerved Group||Italian non-financial corporations|
|Creditreform Rating AG||German non-financial corporations|
The Eurosystem considers a probability of default over a one-year horizon of 0.10% as equivalent to a credit assessment of credit quality step 2 and of 0.40% as equivalent to an assessment of credit quality step 3, subject to regular review.
As further specified in the General framework, all assets accepted by the Eurosystem as eligible collateral, except ABS and retail mortgage-backed debt instruments (RMBDs), must meet the minimum requirement (or “credit quality threshold”) of a credit assessment of credit quality step 3 in the Eurosystem’s harmonised rating scale.
ABS are subject to specific provisions (for more details, see Rating requirements for asset-backed securities).
With regard to RMBDs, the Eurosystem’s threshold is a credit assessment of credit quality step 2 in the harmonised rating scale.
The Eurosystem maps the different grades used in the scales of accepted external credit assessment institutions onto a harmonised rating scale which is subject to regular review.
|ECAI credit assessment||Credit quality steps|
|Short-term||DBRS||R-1H||R-1M, R-1L||R-2H, R-2M|
|Standard & Poor’s||A-1+||A-1||A-2|
|Standard & Poor’s||
(1) A rating of at least ‘triple B’ means a rating of at least Baa3, from Moody’s, BBB- from Standard & Poor’s or FitchRatings and a rating of BBB from DBRS.
ECAIs are those institutions whose credit assessments may be used by credit institutions to determine risk weight exposures according to the CRD (Capital Requirements Directive). For the purposes of the ECAF, the general acceptance criteria for ECAIs are as follows:
The Eurosystem reserves the right to decide whether to accept an ECAI for its lending operations, making use, among other factors, of its performance monitoring process.
The general credit quality threshold for asset-backed securities (ABSs) accepted for use as collateral in Eurosystem credit operations is defined as a “single A” level over the lifetime of the transaction on a second-best basis as further specified in the General framework. The “second best” rule means that not only the best, but also the second-best available ECAI credit assessment must comply with the credit quality threshold for ABSs.
In addition, and as specified in the Temporary framework, ABSs with a second-best rating of at least “triple B”(2) in the Eurosystem’s harmonised rating scale at issuance, and at all times subsequently, and subject to certain conditions are also eligible for use as collateral in Eurosystem credit operations. These ABSs need to fulfil the following requirements:
Furthermore, in accordance with the “General documentation on Eurosystem monetary policy instruments and procedures” (Section 6.3.1), the Eurosystem reserves the right to determine whether an issue, issuer, debtor or guarantor meets its high credit standards on the basis of any information it may consider relevant, and may reject or limit the use of assets or apply supplementary haircuts if required to ensure adequate risk protection of the Eurosystem, in line with Article 18.1 of the Statute of the European System of Central Banks and of the European Central Bank.
(2) A rating of at least ‘triple B’ means a rating of at least Baa3 from Moody’s, BBB- from Standard & Poor’s or FitchRatings and a rating of BBB from DBRS.
The ICAS source currently consists of the seven credit assessment systems operated by
NCBs deciding to develop their own ICAS would be subject to a validation procedure. ICASs are subject to the Eurosystem performance monitoring process.
A counterparty intending to use an IRB system to assess the credit quality of the debtors, issuers or guarantors of eligible debt instruments has to obtain the permission of its home NCB. Any branch or subsidiary of a counterparty may rely on the IRB system of its parent if the Eurosystem has accepted the use of the IRB system for ECAF purposes.
Counterparties using an IRB system are also subject to the Eurosystem performance monitoring process.
The Rating Tool (RT) source consists of third-party applications that assess the credit quality of debtors using, among other information, audited accounts. The tools have to be operated by the RT providers. Counterparties wishing to use a specific RT for ECAF purposes have to submit a request to their respective NCB using the appropriate template provided by the Eurosystem, complemented by additional documentation of the RT as specified in the application form. The Eurosystem decides on the acceptance of the proposed RT. The decision is based upon the evaluation of the compliance with the acceptance criteria set by the Eurosystem.
The RT provider participating in the ECAF needs to subject itself by agreement to the Eurosystem performance monitoring process.The template is on pp.8-10 of the following document:
The Eurosystem currently accepts the following credit assessment systems as RT source:
The Eurosystem maps the different grades of accepted RTs’ scales as follows on the Eurosystem’s credit quality steps ( ECB Rating Scale):
|Credit quality steps||Cerved Group||Creditreform Rating AG|
|3||A1.2 to A2.2||CR2 to CR5|