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
US Agencies Issue Several Regulatory and Reporting Updates
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
ECB Issues Multiple Reports and Regulatory Updates for Banks
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
CBIRC Revises Measures on Corporate Governance Supervision
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
HKMA Publications Address Sustainability Issues in Financial Sector
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
EBA Updates Address Basel and NPL Requirements for Banks
The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.
ESMA Publishes 2022 ESEF XBRL Taxonomy and Conformance Suite
The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.
FCA Sets up ESG Committee, Imposes Penalties, and Issues Other Updates
The Financial Conduct Authority (FCA) is seeking comments, until December 21, 2022, on the draft guidance for firms to support existing mortgage borrowers.
FSB Reports Assess NBFI Sector and Progress on LIBOR Transition
The Financial Stability Board (FSB) published a report that assesses progress on the transition from the Interbank Offered Rates, or IBORs, to overnight risk-free rates as well as a report that assesses global trends in the non-bank financial intermediation (NBFI) sector.
