Eurosystem collateral framework: Inclusion of non-marketable assets in the Single List

22 July 2005

In 2004 the Governing Council of the European Central Bank (ECB) approved the gradual introduction of a Single List in the collateral framework of the Eurosystem to replace the current two-tier system of eligible collateral (see the press release of 10 May 2004).

As a first step, the Governing Council decided to include in the Eurosystem collateral framework a new category of previously ineligible assets (euro-denominated debt instruments issued by entities established in those Group of Ten countries that are not part of the European Economic Area). Following the completion of preparatory work, on 1 July 2005 selected debt instruments issued by entities established in those G10 countries that are not part of the European Economic Area were added to the list of eligible assets that is published on the ECB’s website. In addition, the Governing Council also revised the list of non-regulated markets accepted for eligible assets (see also the press release of 30 May 2005).

As a second step, the Governing Council has approved the framework for including non-marketable assets from all euro area countries in the Single List of eligible collateral. This framework will apply to bank loans and to non-marketable retail mortgage-backed debt instruments (NRMDs) (see also the press release of 5 August 2004). The main features of the framework are described below.

A detailed description of the eligibility criteria that will apply to non-marketable assets will be provided in due course together with a revised version of “The implementation of monetary policy in the euro area: General documentation on Eurosystem monetary policy instruments and procedures” (referred to as the “General Documentation”).


According to the Governing Council’s decision published on 18 February 2005 (see the “other decisions taken by the Governing Council” and published on that date), the inclusion of bank loans in the Single List will take place according to the following time frame:

  • Bank loans will be eligible as collateral for Eurosystem credit operations in all euro area countries from 1 January 2007, when common eligibility criteria and the Eurosystem credit assessment framework (ECAF) will be implemented;
  • Between 1 January 2007 and 31 December 2011 an intermediate regime will be in place, allowing each Eurosystem national central bank to choose the minimum threshold for the size of loans eligible for collateral purposes and whether a handling fee should be applied;
  • As from 1 January 2012 a unified regime will be in place for the use of bank loans as collateral with a common minimum threshold of €500,000.

Eligibility criteria

As from 1 January 2007 the following eligibility criteria will apply:

Eligible loan: This is a debt obligation of an eligible debtor (see below) to Eurosystem counterparties which complies with all the eligibility criteria defined below. The eligibility criteria for bank loans will also apply to syndicated loans. Bank loans that have a “reducing balance” (i.e. where the capital and interest are paid off according to a pre-agreed schedule) are also eligible. Undrawn credit lines (e.g. undrawn facilities of revolving credit loans), current account overdrafts and letters of credit (which authorise the use of credit but are not bank loans per se) are not eligible. Bank loans affording rights to the principal and/or the interest that are subordinated to the rights of holders of other bank loans or debt instruments of the same issuer are also ineligible.[1]

Eligible debtors: These are non-financial corporations and general government.[2] Guarantors and eligible guarantees will be subject to the regime applied to eligible marketable debt instruments.[3]

Minimum size of loans: From 2007 to 2012 each NCB will apply a minimum size of its choice. As from 2012 a common minimum threshold of €500,000 will be introduced.

Creditworthiness of the debtor: Debtors must be financially sound to be eligible. Financial soundness will be assessed through the ECAF (see section 1.3 below).

Currency of denomination: Only bank loans denominated in euro will be eligible.

Maximum and minimum maturity: None.[4]

Governing law of the loan agreement: The loan agreement must be governed by the laws of a euro area member country.

Location of the debtor/guarantor: The debtor/guarantor must be located in a euro area member country.

Additional legal requirements

Different legal requirements exist in the individual euro area member countries which have to be met in order to ensure that a valid security interest is created over bank loans and that the loans can be swiftly realised in the event of a counterparty default. Such legal requirements relate to the notification of the debtor, banking secrecy, and the mobilisation and realisation of the loans. As these issues are not treated uniformly in the different national jurisdictions, legal requirements and the way those requirements are met may vary from country to country.

Eurosystem credit assessment framework (ECAF)

The ECAF comprises the body of techniques and rules establishing the Eurosystem’s requirement for “high credit standards” of eligible collateral. The ECAF relies on four credit quality assessment (CQA) sources, i.e. external credit assessment institutions (ECAIs), the internal credit assessment systems (ICASs) of national central banks[5], counterparties’ internal ratings-based (IRB) systems, and third-party providers’ rating tools (RTs) operated by approved third-party operators. No ranking will be applied between CQA sources.

All CQA sources will have to fulfil a source-dependent set of eligibility criteria, which will guarantee the ECAF’s principles of accuracy, consistency and comparability among the four sources considered and within each source itself. The Eurosystem will monitor the performance of the different sources against a benchmark in order to guarantee that eligible collateral fulfils the minimum creditworthiness standards.

The Eurosystem will, in due time, make public a credit quality threshold for eligible debtors and eligibility rules for guarantors of non-marketable assets, as well as the performance benchmark against which CQA sources will be monitored. The Eurosystem will also, in due time, make public the list of eligible ECAIs, as well as eligible third-party RTs and their operators.

Each counterparty will have to specify which available CQA source (ECAI, IRB system, RT or ICAS) it will use as the principal tool for assessing the debtors/guarantors of the bank loans to be submitted as collateral. It will subsequently have to stick to this CQA system for a predetermined period of time (e.g. one year). The list of eligible debtors/guarantors as submitted by a counterparty will remain strictly confidential information known only to the Eurosystem and the counterparty.

The set of techniques and rules foreseen in the ECAF for bank loans will also be applicable to non-rated marketable assets


Procedures for using bank loans as collateral will be implemented according to the national legal and operational environment and the expected volume of eligible loans that the counterparties will use.

As of the start of the intermediate period, each NCB will implement national solutions complying with minimum common service requirements that ensure a minimum Eurosystem level of service for transferring bank loans. The correspondent central banking model (CCBM) will allow counterparties to use bank loans in a cross-border context.


Non-marketable retail mortgage-backed debt instruments are assets that stop short of fully-fledged securitisation. This asset category will initially include only Irish mortgage-backed promissory notes. This is due to the specific legal regime for such assets in Ireland, which cannot be easily replicated in other euro area countries. For the time being the Eurosystem does not see a need to extend this category of assets used in Ireland to all the euro area countries, because residential mortgage loans are already eligible as collateral in many countries in a securitised form, either as residential mortgage-backed securities or in the form of Pfandbrief-style instruments.

[1] This is similar to the specifications for the current Tier 1 (see the General Documentation, Chapter 6, footnote 3).

[2] Using the sector breakdown from ESA 95 (European System of Accounts 1995), the categories of eligible debtors will be as follows: central government, state/regional government, local government, and non-financial corporations. Supranational and international institutions are also eligible debtors.

[3] See Chapter 6 of the General Documentation.

[4] As is currently the case (see Chapter 6.2 of the General Documentation), national central banks may decide not to accept bank loans falling due before the maturity date of the monetary policy operation for which they are being used as underlying assets.

[5] This option is only available in Germany, Spain, France and Austria.

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