Monetary policy

Collateral

Collateral is a financial instrument which is either pledged to guarantee the repayment of a loan or sold as part of a repurchase agreement.

According to Article 18.1 of the Statute of the European System of Central Banks (ESCB), the European Central Bank (ECB) and the national central banks may trade in financial markets by buying and selling collateral outright or under repurchase agreements. It also requires all liquidity-providing transactions to be based on adequate collateral provided by the counterparty institutions.

The aim of this requirement is to protect the Eurosystem from possible financial risk.