Collateral refers to financial instruments which are either pledged to guarantee the repayment of a loan or sold as part of a repurchase agreement.
Collateral can be marketable (debt instruments) or non-marketable assets (credit claims derived from non-mortgage loans or credit).
Article 18(1) of the Statute of the European System of Central Banks (ESCB)
states that the European Central Bank (ECB) and the national central banks may operate in the financial markets by buying and selling collateral outright or under repurchase agreement. It also requires all liquidity-providing operations to be based on adequate collateral provided by the counterparties.
The aim of this requirement is to protect the Eurosystem from possible financial risks.