1 Banks hold around 20% of Eurosystem eligible securities
What is the universe of eligible collateral?
In order to participate in the Eurosystem’s refinancing operations, euro area banks must pledge collateral in the form of securities – in particular sovereign bonds, bank and corporate bonds and covered bonds – or credit claims, i.e. loans to households and companies. The Eurosystem defines eligibility criteria, regarding issuers, asset classes and credit risk (Bindseil, Corsi, Sahel and Visser, 2017).
The universe of eligible marketable assets for the Eurosystem’s refinancing operations amounted to around EUR 16,000 billion in the first quarter of 2021, compared with EUR 15,000 billion in the fourth quarter of 2019. This increase of around EUR 1,000 billion mainly reflects the rise in debt issuance since the start of the Covid-19 pandemic. The eligible universe is made up of sovereign bonds (65%), bank and corporate bonds (21%) and covered bonds (15%). This amount depends on the outstanding amount, the valuation of the securities, but also on the eligibility rules: some securities may become ineligible following downgrades of their credit quality. The eligibility rules themselves vary according to the Eurosystem’s decisions: for example, they were eased during the pandemic (see Box 1).
Euro area banks hold only a small share of this eligible universe, which raises the question of the availability of collateral in sufficient quantity on bank balance sheets, particularly in the context of a crisis when it comes to dealing with liquidity shocks and accessing central bank refinancing. Thus, during the Covid-19 crisis, the demand for refinancing increased sharply, with the outstanding amount of targeted longer-term refinancing operations (TLTROs) jumping from EUR 627 billion in the fourth quarter of 2019 to around EUR 2,100 billion in the first quarter of 2021.
The holding of eligible securities by euro area banks
Did this sharp increase in refinancing go hand in hand with pressure on collateral availability? As regards eligible securities, by matching securities holdings statistics by sector (SHSS) with the Eurosystem’s eligible assets database (EADB), it is possible to assess the portfolio of eligible securities held by banks. In the first quarter of 2021, the euro area banking sector held around EUR 3,500 billion worth of eligible securities in nominal terms, which accounted for the bulk of their debt securities portfolio (see Chart 1).(…)
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