13 Jul 2018

ECB non-standard-policies and collateral constraints

Daniel Gros / Willem Pieter De Groen

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Collateral constitutes an indispensable lubricant for the financial system. Government bonds constitute the most important source of collateral, for use in inter-bank and repo transactions. But, the vast bond buying program of the ECB in the context of the Public Sector Purchase Programme has not led to any collateral scarcity. Banks still hold very large amounts of sovereign bonds and they have ample other collateral should they want to borrow more from the ECB for ‘standard’ monetary policy operations. Banks tend to use less liquid assets as collateral with the ECB, but this does not mean necessarily more risk for the ECB for which liquidity is not important.

Daniel Gros is Director and Willem Pieter de Groen is Research Fellow and Head of the Financial Markets and Institutions Unit at CEPS.

This material was originally published in a paper provided at the request of the Committee on Economic and Monetary Affairs of the European Parliament and supervised by its Policy Department for Economic, Scientific and Quality of Life Policies. The opinions expressed in this document are the sole responsibility of the author and do not necessarily represent the official position of the European Parliament. The original paper is available on the European Parliament’s webpage (www.europarl.europa.eu/cmsdata/150702/CEPS_FINAL_publication.pdf). (c) European Union, [2018].