Part 6 – Criteria for eligibility and management of collateral

Pursuant to Directive 2014/49/EU, DGSs should only accept low-risk assets as collateral to secure the payment commitment amount. DGSs and designated authorities should determine appropriate criteria on the eligibility of the collateral, taking into account credit and market risks of the issuers of the low-risk assets and the liquidity of those assets, as a way to avoid illiquid assets. They should also take into account the concentration and currency risks. In principle, the criteria on eligibility of collateral posted to the European Central Bank (ECB) or national central banks of the European Union should be deemed compliant with the requirements laid down in this Part 6 of the guidelines.

DGSs or designated authorities should also provide exposure limits, ensuring that for each credit institution, there is a high diversification of the assets with regard, at least, to issuer and maturity. For small institutions which are not able to deliver low-risk assets compliant with the requirements regarding diversification and exposure limits, the level of diversification of the low-risk assets delivered as collateral may be lower as long as a high overall level of diversification of low-risk assets within the DGSs’ collateral portfolio is still met.

DGSs should limit their exposure to debt, whether public or private, the value of which is highly correlated to events where the DGS would have to repay depositors or contribute to resolution and, therefore, might have to call the payment commitment. However the currency of denomination of the debt should not be considered for this purpose as it would place excessive constraints on the ability to provide collateral. Moreover, in line with the principle of proportionality, for small institutions which are not able to deliver assets as collateral compliant with this requirement, the level of correlation may be higher, as long as the overall level of correlation within the DGSs’ portfolio remains low.

In addition, DGSs and designated authorities should address in an adequate manner the differences, where they exist, between the currency of denomination of the collateral and the currency of denomination of the covered deposits of the DGS.

The management of collateral may be performed by the DGS itself, or by a third party as part of a tripartite collateral management service as long as the requirements laid down in these guidelines are met.