ECB to Consider Climate Risks When Reviewing Collateral Framework
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.
Related Links
Keywords: Europe, EU, Banking, Securities, Climate Change Risk, ESG, Collateral Framework, Action Plan, Roadmap, Credit Risk, Disclosures, Reporting, Proportionality, ECB
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Michael Denton, PhD, PE
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
Previous Article
BOM Updates Guidance on LIBOR Transition in MauritiusRelated Articles
OSFI Issues Phase2 Consultation on Climate Scenario Exercise for Banks
The Office of the Superintendent of Financial Institutions (OSFI) recently announced a consultation on the second phase of the Standardized Climate Scenario Exercise (SCSE) for banks and other financial institutions it regulates in Canada.
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
