The financial risk management of the Eurosystem’s monetary policy operations
July 2015
 
 
Contents
Foreword 3
 
1
 
Principles, objectives and the organisation of the Eurosystem’s risk management function 4
 
1.1
 
Introduction 4
 
1.2
 
Why manage risks? 5
 
1.3
 
Principles of the Eurosystem’s risk management function 6
 
Box 1
Risk efficiency and risk equivalence in the implementation of monetary policy 7
 
1.4
 
The organisation and governance of the risk management function 9
 
2
 
Monetary policy instruments: the Eurosystem’s credit operations 11
 
2.1
 
Risks 11
 
2.2
 
Counterparty framework 13
 
Box 2
The separation of the monetary policy and supervisory functions 14
 
2.3
 
Collateral eligibility requirements 15
 
Box 3
Changes in the eligibility rules in the context of the crisis and its aftermath 22
 
2.4
 
Valuation of collateral 26
 
2.5
 
Haircuts and other risk control measures 27
 
Box 4
 Levels of valuation haircuts 31
 
Box 5
Recent reviews of the risk control framework 32
 
2.6
 
Emergency liquidity assistance (not a monetary policy instrument) 33
 
Box 6
Emergency liquidity assistance 34
 
3
 
The risk management framework for outright purchases 36
 
3.1
 
 Asset types, their risks and achieving risk efficiency and risk equivalence 36
 
3.2
 
Tools for the risk management of outright purchases 37
 
 
Box 7
Overview of the Eurosystem’s due diligence for ABS purchases 40
 
4
 
Risk reporting and monitoring 45
 
4.1
 
The ECB’s internal risk monitoring process 45
 
4.2
 
Public risk disclosures 47
 
5
 
Concluding remarks 49
 
6
 
References 50