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    ECB to Consider Climate Risks When Reviewing Collateral Framework

    September 17, 2021

    In a response to the questions posed by a member of the European Parliament, the President Christine Lagarde highlighted the commitment of the European Central Bank (ECB) to an ambitious climate-related action plan along with a roadmap, which was published in July 2021. In addition to comprehensively incorporating climate factors into the monetary policy assessments, ECB will adapt the design of monetary policy operational framework in relation to disclosures, risk assessment, corporate sector asset purchases, and the collateral framework.

    As part of the comprehensive action plan, ECB will introduce disclosure requirements for private sector assets as a new eligibility criterion or as a basis for the differentiated treatment of collateral and asset purchases. These disclosure requirements will take into account EU policies and initiatives in the field of environmental sustainability disclosure and reporting and will promote more consistent disclosure practices in the market, while maintaining proportionality through adjusted requirements for small and medium-size enterprises. The detailed plans will be announced in 2022. With respect to the collateral framework, the ECB President highlighted that the key purpose of the collateral framework is to adequately protect balance sheet from the risks that arise from lending funds to counterparties. The framework is designed to ensure that sufficient collateral remains available to the counterparties to participate in the credit operations, thus enabling the transmission of the monetary policy. A broad range of assets are eligible under the collateral framework, conditional on their compliance with certain requirements and subject to the credit assessment and risk control measures of Eurosystem.

    The letter also mentions that ECB will consider relevant climate change risks when reviewing the collateral framework, in particular the valuation and risk control frameworks for assets mobilized as collateral by counterparties for Eurosystem credit operations. ECB will continue to monitor structural market developments in sustainability products and stands ready to support innovation in the area of sustainable finance within the scope of its mandate. The review of the ECB collateral framework should be concluded by mid-2022. With respect to a question on certain bonds issued by the Canadian province of Alberta, the ECB President confirmed that these bonds meet the current eligibility requirements of the collateral framework of Eurosystem and could therefore be mobilized as collateral for monetary policy operations by the counterparties. The ECB President also highlighted that bonds issued by the Canadian province of Alberta are not held in the Eurosystem’s monetary policy purchase programs (the asset purchase program and the pandemic emergency purchase program) or in its non-monetary policy portfolios related to the management of the ECB’s foreign reserve portfolios and the ECB’s own funds investments, as those bonds do not meet the respective eligibility criteria for purchases under those portfolios.

     

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    Keywords: Europe, EU, Banking, Securities, Climate Change Risk, ESG, Collateral Framework, Action Plan, Roadmap, Credit Risk, Disclosures, Reporting, Proportionality, ECB

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