ESRB warns of European collateral shortages following corporate bond downgrades

NBFI Monitor No 6 / August 2021
EU Non-bank Financial Intermediation Risk Monitor 2021
European Systemic Risk Baord

While the unprecedented set of collateral measures has mitigated the tightening of financial conditions and widened the pool of collateral availability, shortages of collateral may re- emerge in the event of corporate debt downgrades, especially if there is a prolongation of a COVID-19 induced crisis. The expansionary collateral policy had an immediate effect on repo rates, resulting in a decline following the announcement of the pandemic emergency purchase programme (PEPP) in mid-March. Volatility spikes in repo rates remained low as euro area investment funds engaged in repo transactions to raise cash, either through selling assets or drawing on credit lines. While the collateral-easing measures from the first PEPP purchases restored liquidity in the markets, rates subsequently increased in late March and April 2020 as investors became concerned over potential collateral shortages in the event of rating downgrades. Nevertheless, following the additional measures undertaken to mitigate the impact of possible rating downgrades on collateral availability, repo rates declined between May and October 2020, signalling that most of the concerns over shortages have been alleviated. Price terms offered to NFCs, insurance corporations and hedge funds eased significantly in the third quarter of 2020 after tightening in the first half of the year.

The full report is available at

Related Posts

Previous Post
AxiomSL: asset manager survey reveals data silos a major headache for COOs
Next Post
BoE research questions role of AI systems in risk management and supervision

Fill out this field
Fill out this field
Please enter a valid email address.


Reset password

Create an account