ECB changes collateral rating rules
24 February 2025 EU
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The European Central Bank (ECB) has changed the rules on the use of credit ratings issued by external credit assessment institutions (ECAIs) to assess the eligibility of private sector assets under the Eurosystem collateral framework.
The second-best rating will apply to private sector assets, such as unsecured bank bonds, covered bank bonds, and assets issued by non-financial corporations.
This decision also applies to the accepted non-euro area public sector, following a review of the rating aggregation rules aimed at making better use of all available credit rating information in the Eurosystem Credit Assessment Framework (ECAF).
According to the ECB, the review took into account the increased number of ECAIs accepted in the ECAF and the fact that the Eurosystem is open to accepting additional rating agencies once they comply with the acceptance criteria.
Under the current rules, where multiple ECAI ratings exist, the Eurosystem selects the first-best rating to assess collateral credit quality, which applies to all assets other than asset-backed securities, for which a second-best rating rule is already followed.
Under the new rules, private sector assets will be assessed based on the second-best rating among the ratings from accepted ECAIs.
For assets with only one rating from an accepted ECAI, where the second-best rule therefore cannot be applied, a one-notch downgrade will be applied to the available rating to determine the rating relevant for collateral purposes.
The ECB also decided that the rules will remain unchanged for assets issued or guaranteed by the euro area public sector, including governments and recognised agencies.
These assets, for which the Eurosystem makes regular use of all available credit quality information and applies enhanced due diligence procedures, will therefore continue to be assessed based on their first-best rating.
The ECB reserves the right to deviate from credit rating agencies’ ratings if warranted, in line with its discretion under the monetary policy framework, thereby avoiding mechanistic reliance on these ratings.
The rule change will enter into force no earlier than 18 months from the announcement made on 21 February to allow for implementation in the Eurosystem IT infrastructure.
The ECB will announce the exact date, along with technical details, ahead of the implementation.
The second-best rating will apply to private sector assets, such as unsecured bank bonds, covered bank bonds, and assets issued by non-financial corporations.
This decision also applies to the accepted non-euro area public sector, following a review of the rating aggregation rules aimed at making better use of all available credit rating information in the Eurosystem Credit Assessment Framework (ECAF).
According to the ECB, the review took into account the increased number of ECAIs accepted in the ECAF and the fact that the Eurosystem is open to accepting additional rating agencies once they comply with the acceptance criteria.
Under the current rules, where multiple ECAI ratings exist, the Eurosystem selects the first-best rating to assess collateral credit quality, which applies to all assets other than asset-backed securities, for which a second-best rating rule is already followed.
Under the new rules, private sector assets will be assessed based on the second-best rating among the ratings from accepted ECAIs.
For assets with only one rating from an accepted ECAI, where the second-best rule therefore cannot be applied, a one-notch downgrade will be applied to the available rating to determine the rating relevant for collateral purposes.
The ECB also decided that the rules will remain unchanged for assets issued or guaranteed by the euro area public sector, including governments and recognised agencies.
These assets, for which the Eurosystem makes regular use of all available credit quality information and applies enhanced due diligence procedures, will therefore continue to be assessed based on their first-best rating.
The ECB reserves the right to deviate from credit rating agencies’ ratings if warranted, in line with its discretion under the monetary policy framework, thereby avoiding mechanistic reliance on these ratings.
The rule change will enter into force no earlier than 18 months from the announcement made on 21 February to allow for implementation in the Eurosystem IT infrastructure.
The ECB will announce the exact date, along with technical details, ahead of the implementation.
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