ECB non-standard-policies and collateral constraints : in-depth analysis : monetary dialogue July 2018

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. This document was provided by Policy Department A at the request of the Committee on Economic and Monetary Affairs.