Collateral for Monetary Policy Credit Operations
All monetary policy credit operations and intraday credit must be secured by eligible collateral. Eligible collateral consists of two asset classes: marketable (debt securities) and non-marketable (credit claims). Both need to meet certain eligibility criteria.
The list of eligible securities is published on the ECB website. The eligibility of credit claims is assessed on a case-by-case basis, taking account of the eligibility criteria (for more, see the General terms and conditions on the implementation of the monetary policy framework).
Eligible collateral must be of at least the minimum credit rating. These ratings may be taken from a variety of sources, including credit assessment agencies recognised by the Eurosystem or counterparties’ internal ratings-based (IRB) systems (for more on prudential requirements, see the General terms and conditions on the implementation of the monetary policy framework).
Banka Slovenije uses the pool of eligible collateral at Banka Slovenije as collateral for credit operations. The pool of eligible collateral is the total value of the financial assets that an individual counterparty designates as collateral for credit operations raised with Banka Slovenije. The value of the pool must at all times exceed the total amount of credit operations.
The counterparty mobilises eligible domestic collateral in the pool at Banka Slovenije by registering a maximum pledge in favour of Banka Slovenije on it. For debt securities the maximum pledge is registered in the central securities register at KDD, while on credit claims it is registered with the financial assets register at Banka Slovenije.
The counterparty mobilises eligible foreign collateral in the pool at Banka Slovenije via the correspondent central banking model (CCBM). To ensure that collateral is mobilised correctly and in timely fashion, the counterparty needs to give an appropriate instruction to its custodian outside Slovenia to transfer or pledge the collateral in the foreign settlement system, and also to forward the appropriate instruction to Banka Slovenije. In principle the use of the CCBM does not require counterparties to put special processes in place for the transfer or pledging of collateral in another country, but they should nevertheless be aware of the possibility of different market practices in other countries.
Detailed rules for the use of collateral are set out in the User manual for Banka Slovenije collateral.
Use of implicit credit assessment for public sector entities
In determining the eligibility of collateral, an implicit credit assessment can be applied under the criterion of “credit assessment of debtor/issuer or guarantor” for a public sector entity (PSE) if the PSE itself does not have a credit assessment. The implicit credit assessment is based on the credit assessment of the central government. PSEs that are classed as PSE1 under the methodology for calculating a bank’s capital adequacy have the same credit assessment as the Republic of Slovenia, while PSEs classed as PSE2 are given a credit assessment one credit quality step (CQS) lower than that of the Republic of Slovenia.
Banka Slovenije publishes an informative list of public sector entities (in Slovene only), which is generally updated annually or as necessary.
Legal confirmation of eligibility of guarantee
In certain cases a counterparty is required to prove the eligibility of a guarantee, and to send Banka Slovenije the prescribed evidence as stipulated by Article 117 of the General terms and conditions on the implementation of the monetary policy framework. If the guarantor is not a public sector entity with the right to levy taxes, the counterparty must send Banka Slovenije legal confirmation in connection with the legal validity, the binding effect and the enforceability of the guarantee, in form and substance acceptable to the Eurosystem, before the debt securities or credit claims to which the guarantee relates can be considered eligible. The legal confirmation must be provided by an independent legal expert whose position of independence is assessed in relation to the lender, the debtor/issuer, and the guarantor.
Given the requirement for independence in the legal confirmation of the guarantee, the confirmation may in no circumstances be provided by a department of the bank (the lender), the debtor/issuer or the guarantor.
Legal confirmation form (in Slovene only)
Additional clarifications for credit claims
Additional clarifications with regard to the assessment of the eligibility of credit claims that banks may use as collateral for monetary policy credit operations are available to counterparties in the Criteria for the eligibility of credit claims for Eurosystem credit operations (clarification) (in Slovene only). Before a counterparty includes a credit claim in the pool of collateral at Banka Slovenije, it must check whether the credit claim meets all the eligibility criteria.
If a bank has any doubts as to whether a particular credit claim meets the eligibility criteria, it can contact the Banka Slovenije staff by emailing [email protected].
CCBM procedures for cross-border use of collateral
In addition to collateral issued/approved in Slovenia, counterparties can also add eligible collateral issued/approved abroad to the pool of collateral. In the cross-border use of collateral, the national central banks of the Eurosystem act in the role of custodian/correspondent for one another. The rules are set out by the correspondent central banking model (CCBM).
When a Slovenian counterparty pledges cross-border collateral at Banka Slovenije, under the CCBM the other national central bank plays the role of custodian central bank (CCB) vis-à-vis Banka Slovenije (which plays the role of home central bank or HCB).
To ensure that cross-border collateral is mobilised correctly and in timely fashion, the counterparty needs to give an appropriate instruction to its custodian outside Slovenia to transfer or pledge the collateral in the foreign settlement system, and also forwards the appropriate instruction to Banka Slovenije. In principle the use of the CCBM does not require counterparties to put special processes in place for the transfer or pledging of collateral in another country, but they should nevertheless be aware of the possibility of different market practices in other countries.