FAQs on foreign currency-denominated collateral

On 6 September 2012 the ECB announced the temporary expansion of the list of assets eligible as collateral in Eurosystem credit operations ( Press release ). Below, the Eurosystem provides further specifications on the eligibility criteria and risk control measures applied to these assets.

Which legal acts apply to foreign currency-denominated collateral?

The criteria determining the eligibility of collateral for Eurosystem monetary policy operations are laid down in the "General framework" . Additional temporary measures on collateral eligibility are laid down in the “Temporary framework” .

Foreign currency-denominated debt instruments constitute eligible collateral for Eurosystem credit operations from 9 November 2012 onwards, subject to the fulfillment of the relevant eligibility criteria.

Instruments denominated in which currencies will be accepted?
The Eurosystem will accept, on a temporary basis, marketable debt instruments denominated in US dollars, pounds sterling or Japanese yen as foreign currency-denominated collateral.
Where does the asset need to be issued and settled?

The marketable debt instrument must be issued and held/settled in the euro area with a central bank or with a central securities depository (CSD) which fulfils the minimum standards established by the ECB.

In this context, it should be recalled that international debt securities issued in global bearer form on or after 1 January 2007 and through the ICSDs Euroclear Bank (Belgium) and Clearstream Banking Luxembourg must, in order to be eligible, be issued in the form of New Global Notes (NGNs).

It should also be recalled that international debt securities issued in global registered form on or after 1 October 2010 and through the ICSDs Euroclear Bank (Belgium) and Clearstream Banking Luxembourg must, in order to be eligible, be issued under the New Safekeeping Structure for international debt securities (NSS). International debt securities in Classical Global Note (CGN) form are not eligible if issued after 30 September 2010. International debt securities in registered form or individual bearer form issued before 1 October 2010 remain eligible until their maturity. International debt securities in individual bearer form issued after 30 September 2010 are not eligible.

Where do the issuers/guarantors of foreign currency-denominated assets need to be established?

The Eurosystem will only accept marketable debt instruments from issuers of foreign currency-denominated collateral established in the European Economic Area (EEA), i.e. all EU countries plus Iceland, Norway and Liechtenstein. This means that non-EEA G10 issuers are excluded.

The guarantors must be established in the EEA, unless a guarantee is not needed to establish the high credit standards for marketable assets, as laid down in the "General framework" . For asset-backed securities (ABSs), originators and - where applicable - intermediaries must be incorporated in the EEA.

For how long will this temporary measure be in place?
As stated in the press release of 6 September 2012, foreign currency-denominated collateral will be eligible for Eurosystem credit operations until further notice.
Which exchange rate will be applied?
The exchange rate to be applied between the foreign currencies and the euro will be the euro foreign exchange reference rates , as published on the ECB’s website on the day before the valuation.  These reference rates are updated on a daily basis.
If a foreign currency-denominated asset is deemed eligible, where will this information be published?

Subject to a positive eligibility assessment, marketable debt instruments denominated in foreign currencies will be included in the list of eligible marketable assets published on the ECB’s website. This list is updated on each TARGET2 business day at 6.30 p.m. CET.

What types of foreign currency-denominated assets are acceptable for Eurosystem credit operations?

Subject to fulfilling standard eligibility criteria, all types of currently accepted marketable debt instruments could be eligible. Standard eligibility criteria are specified in section 6.2.1 of the "General framework"

Moreover, and as laid down in the “Temporary framework” , specific Articles of that Guideline apply to foreign currency-denominated collateral.

This means that certain ABSs with a second-best rating below AAA, which have become eligible as a consequence of the temporary measures, could also be eligible if they are denominated in USD, GBP or JPY. However, non-marketable assets denominated in foreign currency are not eligible.

What valuation mark-downs will be applied?

In addition to the haircuts foreseen in the "General framework" for assets with similar characteristics but denominated in euro, the following valuation mark-downs will be applied:

  • a mark-down of 16% on assets denominated in US dollars or pounds sterling; and
  • a mark-down of 26% on assets denominated in Japanese yen.

Will foreign currency-denominated assets be accepted on a cross-border basis?
Yes, under the conditions stipulated locally by the home central banks and correspondent central banks.
Up to when can assets with proceeds (e.g. coupon payments, redemptions) be mobilised?

National central banks may decide not to accept marketable debt instruments denominated in foreign currencies with an income flow (e.g. a coupon payment) occurring or falling due in the period for which they are put forward to be used as collateral with the Eurosystem.

In any case, it is recommended to remove assets with proceeds from the collateral pool two days before the value day. Payment of proceeds in foreign currency will be done on a best-efforts basis via the home central bank. Same-day value cannot be ensured as payments will be processed outside TARGET2 (through a non-euro correspondent bank).