Banking union should now be completed following the finalisation of the 2  BIS central bankers’ speeches  Comprehensive Assessment and the SSM taking on supervisory responsibility. This means in particular completing the SRM, enhancing the borrowing capacity of the Single Resolution Fund and thereby delivering on the commitment to establish a credible backstop. Moreover, looking forward, a greater integration of financial markets – also referred to as a Capital Markets Union (CMU) – would be warranted to further reduce fragmentation of financial markets, improve funding to SMEs, enhance the transmission of the ECB’s monetary policy, and overall benefit economic growth. We look forward to the detailed elements that the Commission will announce in the course of 2015 and I have no doubt that the European Parliament as co-legislator will again play a decisive role in this regard. The collateral framework of the Eurosystem Let me now say a few words on the second topic you have chosen, our collateral framework. Since the very beginning, the Eurosystem collateral framework had been designed to achieve two goals at the same time: First to protect the Eurosystem from incurring losses, as it is explicitly required by the Statute of the ECB/ESCB; second to ensure that Eurosystem credit operations can be carried out smoothly by making sufficient collateral available. The past and recent experience has shown that such a dual set-up of the Eurosystem collateral framework has been indeed very effective. So far, the Eurosystem has never had to recognise a loss stemming from the Eurosystem credit operations.
A collateral framework must never act in a pro-cyclical manner: Restricting banks’ access to liquidity in a crisis – for instance, by introducing more restrictive criteria for collateral – might pose a risk not to only to the most vulnerable banks, but to the whole financial system. Ultimately, this would increase the risk for the central bank’s balance sheet rather than protecting it. Hence, in order to enable that a wide range of the counterparties could continue participating in the refinancing operations, the Eurosystem temporarily relaxed some of the eligibility criteria for underlying assets. This was done on several occasions. For instance, from 2008 to 2011 and again as of 2012, we accepted foreign denominated marketable assets. In 2012 we created the Additional Credit Claims framework. Credit standards have been changed by accepting lower rated assets compared to those accepted at the beginning, notably for ABS that fulfill certain criteria. However, these accommodative measures were coupled with a stronger-scrutinised counterparty framework and with more stringent risk control measures. As a result, the total amount of eligible collateral increased. Thus, an enhanced participation of counterparties in the refinancing operations was enabled, while at the same time the risks for the Eurosystem expanded only moderately. BIS central bankers’ speeches  3  The Eurosystem collateral framework has been quite complex from the very beginning, not the least because of the variety of national frameworks preceding it.