Banks should manage their credit risk prudently to ensure that there are no undue concentrations of risks to individual entities, associates, industries geographical areas, sectors or banking products. The risks of a merged entity should not be more than the risks of the two stand-alone entities. Increasing supervisory attention has to be paid to the credit exposures of the merged entity.
In order to understand the role of the collateral framework in the current turmoil, let me recall a key principle of the Eurosystem’s operational framework stating that all credit operations need to be based on adequate collateral.