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One of the guiding principles of Economic and Monetary Union is to treat all counterparties in central bank operations equally.
To apply this principle to the use of collateral, the Eurosystem has implemented the correspondent central banking model (CCBM). The CCBM ensures that all assets eligible for use either in monetary policy operations or to obtain intraday liquidity in TARGET are available to all its counterparties – regardless of where in the euro area the assets or the counterparty are situated.
The CCBM is also available to counterparties of the Bank of England, Danmarks Nationalbank and Sveriges Riksbank.
Counterparties to the monetary policy operations of the Eurosystem and participants in TARGET can only obtain credit from the central bank of the country in which they are based – their home central bank (HCB).
The CCBM enables Eurosystem counterparties to use eligible marketable assets issued (i.e. registered or deposited) in other euro area countries as collateral. To do so, they must transfer the eligible assets to an account maintained by the local national central bank (NCB) in the "issuing" securities settlement system (SSS) (i.e. the SSS in which the securities have been issued and deposited). The local NCB is in general the central bank of the country where the SSS is located. The local NCB will then hold the collateral on behalf of the central bank granting the credit (the HCB) and thus act as a correspondent central bank (CCB). The transfer in the issuing SSS is generally effected on behalf of the counterparty by a local custodian participating in the system.
Furthermore, following the introduction of the single list of collateral on 1 January 2007, specific CCBM procedures for non-marketable assets (see below) have been introduced to allow them to be used on a cross-border basis.
A Spanish bank wishes to obtain credit from the Banco de España on the basis of marketable assets that it holds in the Italian central securities depository (Monte Titoli).
The CCB provides the necessary information to the HCB on the delivery and eligibility of the securities. The HCB processes that information, conducts the valuation process and provides liquidity to the counterparty (i.e. a cash payment or an increase in a counterparty's overdraft limit). The HCB will not advance funds until it is certain that the counterparty's securities are eligible and have been safely received by the CCB.
back to topCustodian banks play an important role in the CCBM processing chain when delivering marketable assets to the CCB on behalf of the counterparty (see Step 3 above).
The major European credit sector associations (the European Banking Federation, the European Savings Banks Group and the European Association of Co-operative Banks) have established "best practices" for custodian banks involved in CCBM transactions. They provide market participants with guidelines for optimising the efficiency of the CCBM. The guidelines include time benchmarks, clear input deadlines and communication channels.
The following are best practices for market participants involved in CCBM operations as agreed by the European Banking Federation, the European Savings Banks Group and the European Association of Co-operative Banks:
Eligible non-marketable assets for Eurosystem credit operations comprise
i) credit claims, and
ii) Irish mortgage-backed promissory notes.
These assets cannot be transferred through an SSS. Due to their specific characteristics, distinct CCBM procedures have been set up for their use on a cross-border basis.
In the case of credit claims, when the jurisdiction of the law governing a credit claim and that of the NCB of the counterparty (i.e. the HCB) do not coincide, the credit claim can be mobilised via the NCB of the jurisdiction of the law governing the credit claim (which acts as the CCB) on the basis of a transfer, pledge, assignment or floating charges on behalf of and in the name of the HCB.
Counterparties should follow the handling procedures and legal requirements as specified in the terms and conditions stipulated by each NCB acting as a CCB.
For details, seeAn Irish variant has been introduced for Irish mortgage-backed promissory notes.
For details, see the publicationCounterparties who make use of collateral on a cross-border basis must pay a transaction fee of €30 for each asset delivery to their HCB through the CCBM.
In addition, a combined custody and administration fee of 0.0069% per annum is charged on the nominal value of the assets held each month. Taxes are not included in these fees. In addition to the above, HCBs may charge local fees. Further information on fee collection procedures may be obtained from the relevant NCBs.
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