FAQs on the use of external ratings in the Eurosystem collateral framework

Last updated on: 29 September 2026

Links:

• Press Release on the GD updatef
• Amending Guideline (EU) 2015/510 on the implementation of the Eurosystem monetary policy framework (ECB/2014/60)
• Overview of rating aggregation rules

On 19 February 2025 the Governing Council of the European Central Bank (ECB) revised the rating aggregation rules for using external credit ratings to assess the eligibility of private sector assets for use as Eurosystem collateral and to determine the haircuts that need to be applied to those assets.

Under the revised rules, the second-best available rating will be used for private sector assets such as unsecured bank bonds, covered bank bonds and assets issued by non-financial corporations. The same approach will also apply to assets issued by the non-euro area public sector. The Eurosystem is incorporating the updated rating aggregation approach into its operational and collateral assessment processes, including the related adjustments to the Eurosystem’s IT infrastructure.

The adjusted rules will take effect from 30 November 2026. Further details are available in the 21 February 2025 press release. These FAQs aim to provide further clarifications on the provisions in the amending Guideline (EU) 2015/510, ECB/2014/60), which remains the definitive reference for the rating aggregation rules.

1. What is changing in the Eurosystem’s rating aggregation rules?

Under the Eurosystem credit assessment framework (ECAF), when more than one credit rating issued by external credit assessment institutions (ECAIs) is available for an asset, specific aggregation rules determine which rating is used to assess its eligibility and to set the appropriate haircut for collateral valuation purposes.

Starting 30 November 2026, the Eurosystem will apply the second-best rating rule to assets from the following types of issuers:

• Private sector issuers (e.g. unsecured bank bonds, covered bonds, non-financial corporate bonds and bonds issued by financial corporations other than credit institutions)
• Non-euro area public sector issuers (e.g. non-CRR public sector entities (PSEs)^[1] and non-euro area sovereign bonds)
• Certain international and supranational issuers that fall outside the euro area public sector (including issuers located outside the euro area and whose shareholders are located outside the EU;

For these assets, the second-best rating rule means that:

• if at least two ratings from two different ECAIs are available, the second-best of those ratings is used to determine eligibility and the applicable haircut;
• if only one rating is available, or if all available ratings come from a single ECAI, a one-notch downgrade is applied instead (see Q4.5).

The new rating aggregation rules apply equally to short-term and long-term ratings as well as foreign and local currency ratings. For the sake of simplicity, the examples in these FAQs use long-term ratings only. All other rules on short-term/long-term ratings as well as local currency/foreign currency ratings shall remain unchanged.

The rating aggregation rule for asset-backed securities (ABS) has not been changed. Under this rule, at least two issue ratings from different ECAIs are still required, with the second-best of those ratings being used to determine the ABS’s credit quality.

A visual summary of these rules is provided in Q4.7 and in the Overview of rating aggregation rules.

2. Which assets will continue to use the first-best rating rule?

The first-best rating rule will continue to apply to the following set of issuers, collectively referred to in these FAQs as the “euro area public sector” (as defined in Article 2(27a) of the amending Guideline (EU) 2015/510, ECB/2014/60):

• a euro area central government;
• a euro area regional government;
• a euro area local government;
• an agency (see the list of Recognised agencies on the ECB’s marketable assets web page);
• the Union or an international organisation owned entirely by central governments of Member States;
• a supranational issuer located in the euro area with all owners located in the Union;
• a CRR public sector entity established in a Member State whose currency is the euro.

Assets guaranteed by any of the issuers listed above are also assessed under the first-best rating rule (see also Q4.6).

Rating aggregation rules at a glance

3. Why are the rating aggregation rules changing for some assets?

The aim of changing the rating aggregation rules is to make better use of all available credit rating information within the ECAF, in light of the growing number of ECAIs accepted in the ECAF. This adjustment is also guided by the Eurosystem’s continued openness to recognising additional rating agencies once they meet the ECAF’s acceptance criteria.

Under the first-best rule, the most favourable of the available ratings is selected. This tends to introduce an upward bias in the assessment and makes it more vulnerable to rating outliers and to “rating shopping” (i.e. placing excessive weight on the most favourable agency’s view). The second-best rating rule addresses this bias.

The first-best rating rule is being retained for the euro area public sector issuers listed in Q2. This is in recognition of their unique role in the transmission of our monetary policy and the financial markets as benchmark assets. For such assets, there is a wide range of available credit quality information that the Eurosystem makes regular use of when conducting enhanced due diligence.

4. How will the second-best rule for marketable assets be implemented?

The following questions explain step by step how the relevant rating is determined where the second-best rating rule applies.

Overview of the process for selecting the relevant rating

4.1 What are the priority rules for selecting ratings?

Before the ratings can be compared across ECAIs, a single relevant rating must first be identified for each ECAI. In this process, which type of rating takes priority depends on the type of asset:

Where an ECAI provides more than one rating of the same priority, the best eligible rating from that ECAI is used. The second-best rating across all ECAIs is determined once the relevant ratings are selected within each ECAI (see Q4.2).

Example: identifying relevant ratings from different ECAIs

• A non-euro area public sector bond has an issuer rating of AA and a guarantor rating of A- from one ECAI. From a second ECAI, it has an issuer rating of BB and a guarantor rating of AAA.
• The relevant rating from the first ECAI is the issuer rating, AA (the higher of the two). The relevant rating from the second ECAI is the guarantor rating, AAA (also the higher of the two).
• These two ratings – AA and AAA – then go forward to the cross-ECAI comparison described in Q4.2.

4.2 How are the ratings aggregated across ECAIs?

Once the relevant rating has been identified for each ECAI (see Q4.1), the second-best of these ratings determines the asset’s credit quality. If two ECAIs assign the same best rating, that rating is used as the result of the aggregation.

Example: non-euro area public sector bond

• A non-euro area public sector bond has issuer/guarantor ratings of BBB+, AA+ and BB+ from three ECAIs.
• Ranked from best to worst: AA+, BBB+, BB+. The second-best rating, BBB+, is the relevant rating.

Example: corporate bond

• A corporate bond has issue ratings of A+, A- and A from three ECAIs.
• Ranked from best to worst: A+, A, A-. The second-best rating, A, is the relevant rating.

4.3 What happens if issue ratings are prioritised but only one issue rating is available?

If only one issue rating is available, the treatment depends on the asset type:

Example: Covered bond

• A covered bond has a single issue rating of A from one ECAI and issuer ratings of AA and A+ from two other ECAIs.
• After a one-notch downgrade of the single issue rating, the relevant rating is A-.

Example: unsecured bank bond

• An unsecured bank bond has an issue rating of A from one ECAI and issuer ratings of A- and A+ from two other ECAIs.
• Ranking all three together – A+, A, A- – gives a second-best rating of A. No downgrade is applied.

4.4 What happens if issue ratings are prioritised, but no issue rating is available?

If no issue rating is available, issuer or guarantor ratings are used instead to determine the second-best rating.

Example: corporate bond

• A corporate bond has no issue rating but has issuer ratings of A- and A from two ECAIs.
• The second-best of these two ratings, A-, is the relevant rating.

4.5 What happens when only one relevant rating is available?

A one-notch downgrade is applied if only one relevant rating exists, and no complementing rating is available (see Q4.3) or used (i.e. for covered bonds and for the issuer/guarantor rating of non-euro area public sector bonds, excluding non-euro area PSEs).

A one-notch downgrade means the rating is reduced by one step on the ECAI’s rating scale (see also Article 2(76a) of the amending Guideline (EU) 2015/510 (ECB/2014/60)). For example, a Moody’s rating of Aa1 would be downgraded to Aa2 and a DBRS rating of BBB (high) to BBB.

Example: non-euro area public sector bond

• A non-euro area public sector bond only has one guarantor rating, of BBB-, from one ECAI.
• After a one-notch downgrade, the relevantrating is BB+ which results in ineligibility.

Example: corporate bond

• A corporate bond has a single issuer rating of A from one ECAI.
• After a one-notch downgrade, the relevant rating is A-.

For covered bonds, a single issue rating is always downgraded by one notch, irrespective of whether or not issuer or guarantor ratings are available (see Q4.3).

4.6 Are there specific rules for assets with public sector guarantees?

Yes, there are. Assets guaranteed by the euro area public sector (defined in Q2) continue to fall under the first-best rating rule. Assets guaranteed by the non-euro area public sector fall under the second-best rating rule.

Example: euro area public sector guarantee

• A corporate bond guaranteed by a euro area public sector entity has ratings of BBB+, A-, and A from three ECAIs. No issue rating exists.
• Because the guarantee qualifies as a euro area public sector guarantee, the first-best rating, A, is used.

If the guarantee from the euro area public sector does not meet the Eurosystem criteria, the second-best rating rule applies instead.

Example: non-euro area public sector guarantee

• A covered bond with a non-euro area public sector guarantee has ratings of AA- and A+ from two ECAIs.
• Because the guarantee does not qualify as a euro area public sector guarantee, the second-best rating of A+ is used.

4.7 How can the different rules be summarised for marketable assets?

The following table can help guide the implementation of the rules:^[4]

5. How will the second-best rating rule be implemented for non-marketable assets?

The new rating aggregation rules also apply to non-marketable assets where an ECAI rating source is used to determine collateral credit quality. The following questions explain how the relevant rating rule and rating are determined in this case.

5.1 For which non-marketable assets is the first-best rating rule being retained?

The first-best rating rule applies to non-marketable assets originating from euro area public sector debtors or with a euro area public sector guarantor (see Q4.6). This applies to both the debtor rating and the guarantor rating, irrespective of whether the guarantor is public or private. The same applies where a private sector debtor’s loan is guaranteed by a euro area public sector entity (both the debtor and guarantor ratings are assessed on a first-best basis).

To identify the first-best rating for non-marketable assets, the best debtor rating and the best guarantor rating are first determined separately across all ECAIs. The relevant rating is then the better of these two ratings.

5.2 Which non-marketable assets are subject to the second-best rating rule?

The second-best rating rule applies to non-marketable assets originating from debtors which fall outside the scope of the first-best rating rule (see Q1 and Q2) and where any existing guarantor also falls outside this scope.

5.3 How is the second-best rating determined for non-marketable assets?

Where the second-best rating rule applies, the second-best debtor rating and the second-best guarantor rating are first determined separately across all ECAIs. The better of these two ratings is then selected as the relevant rating.

Example: credit claim

• A credit claim has debtor ratings of A, A- and BBB+ from three ECAIs, and guarantor ratings of AA, A+ and A from three ECAIs.
• The second-best debtor rating is A- and the second-best guarantor rating is A+.
• The relevant rating is the better of the debtor and guarantor ratings, i.e. A+.

5.4. When is a one-notch downgrade applied?

If only one debtor and/or guarantor rating is available, a one-notch downgrade is applied before the relevant rating is selected (see Q4.5).

Example: credit claim

• A credit claim has a single debtor rating of A and a single guarantor rating of BBB.
• Since both ratings are the single available ones for the respective debtor and the respective guarantor, they are both downgraded by one notch − the downgraded debtor rating is A- and the downgraded guarantor rating is BBB-.
• The relevant rating is the better of the debtor and guarantor ratings, i.e. A-.

5.5 What happens if only debtor or guarantor ratings are available?

If several debtor ratings are available but no guarantor ratings exist (or vice versa), the second-best debtor (or guarantor) rating becomes the asset’s relevant rating.

Example: credit claim

• A credit claim has debtor ratings of AA-, A+ and BBB+ from three ECAIs, and no guarantor ratings exist.
• The second-best debtor rating (A+) is selected as the relevant rating.

5.6 What happens if the second-best debtor and guarantor ratings are identical?

If the second-best debtor rating and the second-best guarantor rating are identical, that rating is used as the relevant rating.

Example: credit claim

• A credit claim has debtor ratings of AAA, BB and B from three ECAIs and guarantor ratings of BB and BB from two ECAIs.
• Both the second-best debtor rating and the second-best guarantor rating are BB, so BB is the relevant rating.

5.7 What happens if a euro area public sector guarantee covers only one of several non-marketable assets?

If a debtor that is not a euro area public sector entity has two credit claims, one without a guarantor and one guaranteed by a euro area public sector entity, the two credit claims are treated differently. The second-best rating rule applies to the non-guaranteed claim, while the first-best rating rule applies to the claim guaranteed by the euro area public sector entity.