25 March 2013

BIS: Central bank collateral frameworks and practices - New report from the Markets Committee

This study is a timely stocktake of what central banks have done to update and adapt their collateral policies, in the light of recent experience with market stress and other underlying changes in the financial landscape.

The Markets Committee released a report entitled 'Central bank collateral frameworks and practices'. The report was prepared by a Study Group chaired by Guy Debelle, Assistant Governor of the Reserve Bank of Australia. 

In July 2012, the Markets Committee established a Study Group to take stock of how collateral frameworks and practices compare across central banks and the key changes they have undergone since mid-2007. This initiative followed from the fact that, in the light of recent experience with market stress and other underlying changes in the financial landscape, many central banks have re-examined and adapted their collateral policies. It is also a natural extension of the Committee’s previous work on central bank monetary policy and operating frameworks.

The report examines how collateral frameworks compare across central banks and the key changes they have undergone since mid-2007. The focus is more on the longer-term evolution of central bank collateral policies, including the local factors that explain the observed diversity in practices, and less on the temporary measures adopted during the height of the global financial crisis.

The report also documents how collateral was used over the five-year period beginning in mid-2007, presenting data on the amount and composition of collateral pledged by counterparties to each of the 16 central banks in the study. The data were collected using a common template to enable comparability across central banks.

This study is a timely stocktake of what central banks have done to update and adapt their collateral policies in the light of recent experience with market stress and other underlying changes in the financial landscape. It is also a natural extension of the Markets Committee's previous work on central bank monetary policy and operating frameworks.

Hiroshi Nakaso, Chairman of the Markets Committee and Deputy Governor of the Bank of Japan, said: "The subject matter of this study is of core relevance to central banking. I believe the report could become a reference piece for those who are interested in central bank liquidity operations in different jurisdictions. Moreover, given the growing attention focused on collateral-related issues in the broader financial system, this report, which covers one specific area of collateral practices, could also serve as factual input to the wider debate."

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