Payment systems

Correspondent Central Banking Model (CCBM)

The correspondent central banking model – Correspondent Central Banking Model (CCBM)- was introduced at the start of stage three of the Economic and Monetary Union (EMU) in 1999 to ensure that all assets eligible for use in monetary policy or intraday credit operations are made available to all the Eurosystem's counterparties to establish collateral for their respective central banks, regardless of where the assets or the counterparty are situated. CCBM is also available for the national central banks of England, Denmark and Sweden with their respective counterparties.

CCBM was designed as a medium-term solution until a alternative market solutions became available: Links between securities settlement systems (SSSs), for which use in Eurosystem operations must be deemed eligible by the Governing Council of the European Central Bank (ECB). Today, CCBM is still the most commonly used mechanism for the formation of collateral for central banks. In the case of non-marketable assets (credit claims and non-marketable retail mortgage-backed debt instruments), CCBM is the only possible solution for their cross-border use when these assets are not governed by the domestic law of the central bank granting the facility.

The CCBM is based on the principle of decentralising access to credit which means that the Eurosystem counterparties can only obtain credit from the lending central bank of the country where they are based (Home Central Bank or HCB). When a counterparty wishes to provide securities issued in a securities settlement system of another country, it must transfer these to the central bank of that country or the Corresponding Central Bank (CCB) acting on behalf of the HCB. Normally, a local custodian bank, acting on behalf of the counterparty, is responsible for the transfer in the SSS.

Mobilisation of non-marketable assets not governed by the domestic law of the HCB is also conducted through CCBM, using a specific procedure. The general rule is that the CCB is the NCB of the country whose law governs these assets.

When using CCBM, counterparties should be aware that market practices may vary across countries. In the European Union (EU), they use different legal instruments to form collateral (repo, pledge or floating charges ) and various collateralisation techniques ( pooling and earmarking earmarking ). If the CCB offers several techniques, that chosen by the HCB is the one that is followed, but taking the CCB preferences into account. The responsibility for determining the method of holding the collateral lies solely with the HCB.

As custodian banks play an important role in the CCBM processing chain, the three major European credit sector associations (the European Banking Federation, the European Savings Bank Group and the European Association of Co-operative Banks) established, in 2005, "best practices" to help make the CCBM more efficient.

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