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The European Central Bank is set to reject calls from commercial lenders to permanently ease its collateral rules, a move banks argue is needed to prevent future liquidity squeezes, three senior sources with direct knowledge of the matter said.
Lenders across the euro zone have been lobbying the ECB to continue accepting a wider range of assets as security for its loans, a temporary measure first introduced during the pandemic crisis.
Banks have argued that making the looser standards permanent would give them more flexibility and prevent a scramble for high-quality collateral during times of market stress.
“The ECB’s governing council is firm on this. The emergency measures were just that – for an emergency. A permanent loosening of standards is not on the table,” one of the sources said.
The sources asked not to be named as the discussions are private. An ECB spokesperson declined to comment.
Collateral is the security that banks post when they borrow from the central bank. By accepting lower-quality assets, the ECB takes on more risk, a stance it is now looking to reverse as it normalizes policy.
The issue came to a head earlier this year when volatility in government bond markets made it harder for some banks to access funding, prompting renewed calls for the ECB to be more flexible.
“When markets get choppy, you don’t want to be forced into a fire sale of assets just to find eligible collateral,” a senior executive at a southern European bank said.
The ECB is currently conducting a broader review of its operational framework, which governs how it steers interest rates and provides liquidity to the banking system.
The final decision on collateral rules will be part of this review, which is expected to be concluded and announced in the fourth quarter, the sources said.
They added that while a permanent, broad easing is off the table, the ECB might consider minor technical adjustments to the framework, such as changing haircut calculations on certain assets.
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