Central Bank Collateral Frameworks: Principles and Policies

Author/Editor:

Rebecca McCaughrin ; Simon T Gray ; Alexandre Chailloux

Publication Date:

September 1, 2008

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Central bank collateral policies came under pressure with the 2007-08 financial market crisis. This paper addresses the rationale for and constraints in taking collateral, and recent practices in different collateral frameworks. It then considers the risks of adverse selection. The paper concludes that (i) the collateral framework needs to include market incentives; (ii) central banks face trade-offs between risk and counterparty access; (iii) emerging markets may see pressure on collateral policies in coming years; and (iv) further work is required to develop pricing incentives and the structure of central bank facilities, both during normal times and in periods of market stress.

Series:

Working Paper No. 2008/222

Subject:

Banking Collateral Liquidity Open market operations Securities

Frequency:

Monthly

English

Publication Date:

September 1, 2008

ISBN/ISSN:

9781451870800/1018-5941

Stock No:

WPIEA2008222

Pages:

67

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