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Coeure Says Basel III Could Require ECB Collateral Changes

European Central Bank Executive Board member Benoit Coeure said Basel III and other planned banking regulations may mean the ECB has to change its collateral rules.

A structural change in the demand for collateral as a result of regulatory changes such as Basel III “may warrant changes to central banks’ eligibility criteria for collateral to prevent central bank operations adding to the overall demand and competition for high-quality and liquid collateral for banks,” Coeure said in speech in Amsterdam today.

Banks have warned that liquidity rules and other regulations drafted by global regulators risk forcing them to hoard the same kind of easy-to-sell assets that would otherwise be used as collateral for loans from the central bank.

“Central banks would need to consider extending collateral eligibility beyond these demanded assets,” Coeure said.

European Union banks would have faced a 1.17 trillion-euro ($1.51 trillion) shortfall in the assets needed to meet a liquidity standard drafted by the Basel Committee on Banking Supervision, had it been in force at the end of last year, according to data published last week by the European Banking Authority.

Collateral Pool

The ECB has already widened its list of acceptable collateral as the sovereign debt crisis has hampered the ability of banks in some parts of the euro area, including Spain and Greece, to muster suitable assets.

Still, Coeure said that on aggregate, there is no shortage of collateral in the euro area.

“The average amount of eligible collateral for Eurosystem liquidity operations was 14.3 trillion euros during the second quarter of this year,” he said. “However, only 2.5 trillion euros was put forward as collateral by counterparties. This shows that, despite the fears of collateral scarcity in the euro area, there is some leeway in collateral availability.”

Coeure also said that non-marketable assets, and above all bank loans, “have become the largest single asset class in our collateral portfolio.”

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