Deciphering Opportunities In DECCs – Eurosystem Collateral Assets Back In Focus?

Central banks provide credit funding to financial institutions on specific legal terms and in return for receiving eligible collateralization as security against that funding. In the Eurozone, the European Central Bank (ECB), acts as the primary gatekeeper for the Eurosystem¹ central banks and sets its rules in terms of whom and on what terms it provides funding to. 

The Eurosystem has, subject to certain national central bank specifics, largely centralized the rules on what constitutes eligible collateral assets, who can provide them and subject to which quantitative 'haircuts' along with other risk control measures². The Eurosystem has also set rules as to which  central banks can accept relevant 'eligible' collateral assets. All of these issues are key to both monetary policy (MonPol) transmission measures as well as liquidity provision activities. These considerations and relevant rules are contained in the Eurosystem's 'General Documentation' (the GenDoc).