The ECB rewrites the value of bank collateral

A bank can keep the same security, continue collecting its coupons and discover that it supports less borrowing. The change happens where its portfolio meets the central bank’s lending operations: the value recognised as collateral.

On 29 September 2026, the ECB published two guidelines that revise this machinery. Signed on 22 September, they must be implemented by the Eurosystem’s national central banks from 30 November 2026. They change the selection of certain credit ratings, valuation haircuts and the treatment of several forms of debt. Their effect will depend on each bank’s assets and the funding headroom it already has. ^{[1] [2] [3]}

The account of Governing Council decisions published on 2 October confirms this timetable. ^[21]

The annexes reveal distinctions that can disappear behind the description “technical review”. Under the forthcoming schedule, two fixed-rate credit claims with the same outstanding principal and credit quality, each with six years remaining, can provide €82 million or €73 million of collateral coverage per €100 million outstanding, depending on their repayment profile. A single rating can be adjusted down by one notch for collateral assessment. A security pledged by its own issuing bank receives a separate treatment. ^{[2] [3]}

These rules determine a capacity. Whether a bank actually needs that capacity is a question for its liquidity position. The investigation therefore has to follow the whole route: from a customer’s contract to an asset that can be mobilised, and from that asset to funding the bank can obtain.

Three values for the same security

Consider a fictional bank holding a security with a carrying amount of €100 million. For this illustration, assume that its accounting value remains unchanged during the market-price movements being considered. Its initial market value is also €100 million. At a 5% haircut, the central bank recognises €95 million as coverage for credit operations. These figures explain the calculation only. The hypothetical 5% and 10% haircuts used here are not the old and new official schedules.

A collateral haircut is the safety margin deducted from the value of a pledged asset. Should the borrowing bank default, the Eurosystem may have to realise its collateral after prices have moved against it. The buffer provides protection against losses during that process. The bank’s liability to the Eurosystem remains payable. ^{[7] [19]}

Now let the market price fall to €94 million. Keeping the original 5% haircut reduces collateral coverage to €89.3 million. Raising the haircut to 10% then takes it to €84.6 million. The price move has removed €5.7 million of capacity; the haircut change removes another €4.7 million. The total reduction is €10.4 million, even though the illustration holds the accounting value at €100 million.

The distinction is embedded in the valuation rules. The Eurosystem uses a market price for marketable assets, or a theoretical price when an adequate market price is unavailable. Non-marketable credit claims are valued using their outstanding amount. A bank’s accounting measurement, a security’s sale price and its recognised collateral value therefore answer different questions. ^[6]

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1/3 · Carrying amount and assumptions

2/3 · The three coverage values compared

3/3 · Additional collateral required

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Data, assumptions and scope

Teaching assumptions: fictional prices, haircuts, carrying amount and borrowing. None of these rates is an official historical schedule.

Stage	Price (€m)	Haircut	Coverage (€m)
Initial	100	5 %	95
Price only	94	5 %	89.3
Price + haircut	94	10 %	84.6

Suppose the bank already has €90 million of borrowing to cover and no other assets in this simplified pool. The combined changes leave a €5.4 million coverage shortfall. It could close the gap by adding €6 million of market value subject to a 10% haircut. Alternatively, it could repay part of the borrowing using liquidity obtained elsewhere. Its other resources determine the choice.

Actual coverage is managed across a pool of collateral and operations, subject to the rules for each instrument. Our illustrations deliberately isolate individual variables. They exclude accrued refinancing interest, additional valuation markdowns and special treatments. A theoretically valued security or one denominated in certain foreign currencies, for example, may face further adjustments. ^{[3] [8]}

From a customer loan to settlement between banks

The connection to the real economy becomes clearer when the borrower spends the loan proceeds.

In a second illustration, bank A lends a company €20 million. It records a €20 million loan asset and credits the company’s deposit account by €20 million on the liability side. The loan has created the deposit. When the company pays a supplier whose account is at bank B, A must settle the transfer with B, generally in central bank money. Loan creation and interbank settlement are distinct stages. ^[9]

In the sequence shown, A starts with sufficient reserves and replenishes them afterwards. More generally, it can obtain reserves in the market or from the Eurosystem, provided it meets the access conditions. In our example, previously available collateral worth €25 million, subject to a hypothetical 20% haircut, covers €20 million of refinancing. The bank receives reserves and incurs a liability to the central bank. Its commercial loan remains an asset, together with the risk that the company fails to repay.

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1/2 · 1–2 · The loan creates a deposit, then the customer pays

2/2 · 3–4 · Reserve settlement and refinancing

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Data, assumptions and scope

Simplified circuit and fictional amounts. The commercial loan and central bank refinancing remain separate contracts.

Entry	Change
Customer loan	+€20m
Deposit created	+€20m
Reserves transferred from A to B	€20m
Available collateral, example	€25m
Refinancing received	€20m

An individual institution can obtain reserves from another bank. Across the system, that transaction redistributes existing reserves; only the central bank can supply additional reserves. The Eurosystem’s operational framework includes fixed-rate, full-allotment refinancing against eligible collateral for eligible counterparties. Subject to those conditions, a counterparty receives the volume it requests at the announced rate. ^{[10] [11]}

Collateral consequently matters both for preparing future cash outflows and for the cost of funding. A bank may preserve a funding cushion by tightening some of its commercial terms. Another may absorb the same change using reserves or stable deposits. The €20 million in the diagram explains a specific settlement. It does not establish a universal multiplier linking collateral to lending.

Central bank reserves must also be distinguished from equity, which absorbs losses. Pledging an asset and receiving refinancing adds a repayable source of funding. It can help a bank meet payments without, by itself, increasing the bank’s capital.

The second opinion becomes decisive

The first change concerns the selection of ratings. The ECAF, the Eurosystem credit assessment framework, sets the criteria and systems used to assess the credit quality of collateral. ^[5]

For the private-sector assets concerned and certain public-sector assets outside the euro area, the Eurosystem will use the second-best relevant rating from accepted rating agencies. An issue rated A−, BBB+ and BBB by three different agencies will consequently be assessed using BBB+. Before that comparison, however, the relevant rating from each agency must be identified. Issue, issuer and guarantor ratings follow prescribed priorities. Three assessments from the same agency do not constitute three independent opinions. ^{[2] [4]}

Take a fictional unsecured bank bond with a fixed coupon, six years of residual maturity and a reliable market value of €100 million. We use the same forthcoming haircut schedule for both rating selections, isolating the rating rule. With A−, mapped to credit quality step 2, the category IV haircut is 12%, supporting €88 million of coverage. With BBB+, mapped to step 3, the haircut is 20%, supporting €80 million. The difference is €8 million. ^{[3] [5]}

This comparison captures the effect of rating selection within the schedule taking effect on 30 November. A complete assessment for an actual bank would also need the previous schedule and every other relevant attribute of its securities. The €88 million and €80 million figures are therefore not observed official valuations before and after the reform.

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1/2 · Second-best rating and coverage

2/2 · Single rating and eligibility threshold

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Data, assumptions and scope

Fictional positions; official table 2 haircuts, category IV, maturity [5,7), fixed coupon. Same future schedule in both cases, not a historical before/after estimate.

Selected rating	Quality step	Future haircut	Coverage on €100m
A−	2	12 %	€88m
BBB+	3	20 %	€80m

The treatment of a single rating deserves just as much attention. Where only one relevant assessment is available and no complementary rating can be used, the new rules apply a one-notch downgrade. For a covered bond with a single issue rating, the FAQ provides for this treatment even when other agencies rate the issuer. Certain unsecured bank and corporate bonds receive a different treatment: their single issue rating can be supplemented by other relevant assessments. ^{[2] [4]}

A notch is one step on the agency’s rating scale. Moving from A to A− stays within the same Eurosystem credit quality step. Moving from BBB− to BB+ crosses the general eligibility threshold. A fictional covered bond with one BBB− issue rating and no public guarantee qualifying for the separate treatment can therefore become ineligible under the general framework. The security still has economic value. In that case, its contribution to this collateral pool becomes zero. ^{[2] [5]}

The euro area public sector, as defined in the legal framework, retains the first-best rule. Certain qualifying public guarantees also receive that treatment. The ECB cites the role of these assets in financial markets and monetary transmission. Asset-backed securities, or ABS, already required at least two issue ratings and the use of the second-best. That part of their treatment remains unchanged. ^[2]

External rating agencies are also only one of the credit assessment sources accepted by the Eurosystem. Central banks’ own assessment systems and certain approved bank systems have a role. The reform should therefore not be recast as a universal obligation for every small business borrower to purchase two commercial ratings. ^[5]

Nine million euros in the repayment schedule

The next change concerns how loans return principal to the lender.

An amortising loan repays principal over time. A bullet loan concentrates repayment at maturity. Starting from the same amount outstanding and the same final maturity, the first reduces the remaining exposure earlier. The future haircut schedule explicitly recognises this contractual profile alongside credit quality, remaining maturity and interest-rate structure. ^[3]

Consider two eligible euro-denominated loans, each with €100 million outstanding, a fixed interest rate, six years remaining and credit quality in steps 1 or 2. One repays equal amounts of principal annually. The other repays all principal at the end. Under table 3 of the new guideline, the haircut is 18% for the amortising claim and 27% for the non-amortising claim. Their initial collateral values are €82 million and €73 million. ^[3]

The €9 million difference reflects the treatment of a more gradual contractual repayment profile. It is neither bank income nor a payment to the borrower. As principal is actually repaid, the outstanding amount of the claim also falls, so its collateral calculation must be updated.

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1/2 · The two repayment profiles

2/2 · Haircuts and initial coverage

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Data, assumptions and scope

Fictional €100m loans, 6 years, fixed rate, quality steps 1 or 2. Official table 3. Future principal profiles do not forecast actual loans.

Profile	Initial principal	Haircut	Initial coverage
Amortising	€100m	18 %	€82m
Non-amortising	€100m	27 %	€73m

The legal definition of amortisation is specific. It relies on a predetermined schedule with principal repayments at least annually and the regular payment profiles described in the guideline. Voluntary prepayment options available to the borrower do not substitute for those contractual obligations. Certain initial repayment holidays or contractual rights to change the profile can affect the classification. ^[3]

Then comes an operationally important provision: if the bank cannot establish that a claim meets the conditions, it must treat that claim as non-amortising. In our illustration, substantiating the repayment profile separates €82 million of coverage from €73 million. The contract, the data record and the ability to reconcile the two acquire a measurable funding value.

This creates a task rather different from repricing a loan. The bank must identify the relevant claims, verify schedules, document exceptions and transmit a reliable classification. The illustration quantifies the potential difference for one loan profile. The public evidence reviewed does not establish how many actual claims are affected by documentation gaps.

When banks pledge their own securities

Some collateral structures create a close connection between the quality of the pledged asset and the bank obtaining funding.

Under the applicable conditions, a bank can pledge covered bonds it issued itself, or bonds issued by a closely linked entity. It can also mobilise an ABS originating from its own securitisation. Securitisation pools claims and finances them through securities whose payments depend on the underlying assets’ cash flows. Keeping those securities and pledging them produces a funding route different from selling them to an outside investor. ^[3]

The new guideline replaces flat add-ons for own-use covered bonds with a dedicated haircut schedule reflecting maturity and credit quality. It also defines retained ABS by reference to mobilisation by the originator or a closely linked entity. The treatment seeks to reflect liquidation risk and the relationship between the counterparty and its collateral more closely. ^{[3] [19]}

In the forthcoming grid, a fixed-coupon covered bond in credit quality steps 1 or 2, with a relevant residual maturity of six years, receives a 3.5% haircut under the ordinary treatment and a 13% haircut when used by its own issuer. For €100 million of reliable market value, recognised coverage is €96.5 million in the first case and €87 million in the second. ^[3]

ABS use a different measure of time: weighted average life of the senior tranche, the average time remaining until principal is repaid, weighted by the amounts repaid. At a six-year weighted average life of the senior tranche and credit quality in steps 1 or 2, the haircut is 6% for non-retained ABS and 10% for retained ABS. The same €100 million valuation produces €94 million and €90 million of coverage. Each comparison isolates the status of the asset within the future framework. The two asset classes are not being treated as interchangeable investments. ^[3]

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1/3 · The complete reserves circuit

2/3 · Fixed-coupon covered bonds

3/3 · ABS: senior-tranche weighted average life

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Data, assumptions and scope

Future haircuts, reliable market value €100m, quality 1 or 2, euros, no further markdown. Six-year maturity and fixed coupon for covered bonds; six-year weighted average life of the senior tranche for ABS.

Asset / status	Time measure	Haircut	Coverage on €100m
Ordinary covered bond	6 years	3.5%	€96.5m
Own-use covered bond	6 years	13 %	€87m
Non-retained ABS	WAL 6 years	6 %	€94m
Retained ABS	WAL 6 years	10 %	€90m

Maturity also needs to be examined beyond the headline repayment date. For an own-use covered bond with a contractual maturity extension, known as a soft bullet structure, the haircut calculation uses the maximum contractual maturity. A security expected to repay in six years but extendible to ten may therefore enter the ten-to-fifteen-year bucket. For retained ABS, weighted average life is calculated assuming that issuer call options are not exercised. The lender prepares for a less favourable repayment horizon when the collateral might have to be realised. ^[3]

Liquidity flowing back to the bank is accompanied by a repayment obligation to the Eurosystem. Whether credit risk on the original portfolio has transferred depends on the legal structure and the tranches actually sold. Running claims through a securitisation vehicle is insufficient, by itself, to establish that an outside investor now carries that risk.

Reclassification can also widen access

Some financial subsidiaries of non-financial groups receive a change in the other direction.

An industrial group may issue debt through a finance subsidiary. Subject to the conditions in the guideline, qualifying subsidiaries move into the haircut category used for their non-financial parent group. The definition excludes credit institutions and investment firms and concerns a financial subsidiary issuing marketable assets for its non-financial parent. Such entities can also become eligible debtors for certain non-marketable credit claims. ^{[2] [20]}

The gap between categories illustrates the mechanism. Within the future schedule alone, a six-year fixed-coupon security in credit quality steps 1 or 2 attracts a 12% haircut in category IV and a 5% haircut in category III. A €100 million valuation consequently supports €88 million or €95 million before other applicable adjustments. The qualifying financial subsidiaries are also subject to the climate factor for non-financial corporations. Our €7 million comparison isolates the category change and leaves that further adjustment outside the model. ^{[1] [3]}

Describing the entire package as a uniform reduction in collateral would miss these differences. Each portfolio must be reassessed by combining its characteristics, rating rules and relevant adjustments.

Available headroom changes the result

The same decline in collateral coverage can be an inconvenience for one bank and a binding constraint for another.

Take two fictional banks whose pools each initially support €100 million. Bank A has used €50 million; bank B has used €85 million. Their remaining headroom is €50 million and €15 million. Suppose each pool’s capacity falls to €90 million because of some combination of prices, rules or eligibility changes.

A retains €40 million of headroom. B retains €5 million. Both have lost €10 million, but A has used up 20% of its cushion while B has lost two-thirds. If each needs another €12 million, A can cover it in this example. B must find €7 million elsewhere or add collateral.

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1/2 · Bank A: the initial €50m buffer

2/2 · Bank B: the €15m buffer and new cash need

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Data, assumptions and scope

Two entirely fictional banks. The same capacity decline from €100m to €90m; existing borrowing stays at €50m and €85m.

Bank	Used	Headroom before	Headroom after	Need outside pool
A	€50m	€50m	€40m	€0m
B	€85m	€15m	€5m	€7m

Covering that €7 million with additional assets subject to a 10% haircut requires about €7.78 million of available market value. The bank must own the assets, be able to mobilise them and have enough time to complete the process. A security already pledged elsewhere, an inadequately documented claim and liquidity held in a different group entity present different obstacles.

An alternative funding source may be sufficient. Assume that financing the missing €7 million costs an additional 75 basis points annually, or 0.75 percentage points, for 90 days, on a 360-day convention. The extra expense is €13,125. This is neither the full funding cost nor an estimate of the reform’s effect on an actual institution. It prices one hypothetical temporary replacement of missing capacity.

If no reasonably accessible funding is available, a bank can reconsider its future liquidity needs, maturities or new commitments. With ample reserves and diversified funding, the same change may be readily absorbed. Transmission from a haircut table to customer credit conditions depends on that starting position.

The collateral channel during the 2022–2023 tightening

Research by Mariassunta Giannetti, Martina Jasova, Caterina Mendicino and Dominik Supera takes the argument beyond accounting illustrations. Published in the ECB’s working paper series and presented in a research bulletin on 28 July 2026, it examines securities valuation losses from the first quarter of 2022 to the third quarter of 2023. ^{[14] [15]}

The authors link those losses to reduced secured interbank funding. Effects are concentrated in collateral-eligible securities and banks with more limited liquidity resources. They also find an effect for securities held at amortised cost, whose market-value losses do not directly reduce regulatory capital. Their loan-level analysis accounts for firm-specific credit demand. ^[15]

In their estimates, a one-standard-deviation increase in securities losses is associated with an almost 4% decline in interbank borrowing and a 2.5% decline in corporate lending. These coefficients describe variation in the historical sample. The authors connect it to the collateral channel; they do not provide a formula translating the November reform into a future contraction in lending. ^{[14] [15]}

Differences between institutions also appear inside banking groups. Intragroup funding mitigated the effect for domestic subsidiaries but offered less protection to foreign subsidiaries. A large group’s consolidated balance sheet can therefore conceal local funding constraints. Applying that finding to a bank today would require examining its treasury arrangements, legal entities and effective ability to transfer resources. ^[15]

Several reforms run on different clocks

The September amendments sit within a broader reworking of the collateral framework. The deadlines need to be separated.

30 November 2026 is the implementation date for the rating, haircut and classification amendments discussed here. A separate decision provides for the integration of portfolios of non-financial corporate credit claims into the general framework in November 2027 at the earliest. The relevant temporary arrangements are intended to remain available in the meantime under the announced transition. ^{[2] [3] [12]}

COVID-related publicly guaranteed claims admitted under temporary rules, despite failing to meet all the general framework’s requirements, have another deadline: their temporary eligibility ends by the close of 2026. National central banks could end those arrangements earlier. ^[12]

France has already done so. The Banque de France ended its temporary PGE collateral arrangement on 19 December 2025, following an announcement on 5 December. It said those loans had become a very small part of French collateral and assessed the change as having no impact on French banks’ access to central bank refinancing. Treating the end of 2026 as a fresh French disruption on that basis would move the event by a year. ^[13]

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1/2 · 2025–September 2026: transition, signing and publication

2/2 · From November 2026: implementation and deadlines

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Data, assumptions and scope

Documented dates for different kinds of event. Portfolio integration is scheduled for November 2027 at the earliest. The French temporary PGE framework ended in December 2025.

Event	Date
French temporary PGE framework ends	2025-12-19
Guidelines signed	2026-09-22
Publication	2026-09-29
Implementation of amendments	2026-11-30
General COVID exception ends	2026-12-31
Portfolio integration, earliest date	2027-11

An individual claim may still satisfy ordinary eligibility conditions through another route. The expiry of a temporary exception must be distinguished from eligibility under the general framework. These dates concern banks’ ability to mobilise assets; they do not, by themselves, alter the contractual debt of the company that received the loan.

Measuring the scale of the change

Aggregate collateral availability provides a useful counterpoint, provided the measures retain their proper scope.

The ECB’s 2025 annual report describes, at end-2025, €20.3 trillion of eligible marketable assets, measured at nominal value, and €1.6 trillion of mobilised collateral after valuation and haircuts. The first universe extends beyond assets owned by banks alone. The second also contains non-marketable claims. Dividing the two would produce a ratio with no clear interpretation as banks’ remaining funding headroom. ^[17]

The bank treasurer survey conducted in autumn 2025 offers another perspective. Its 184 respondents represented around 72% of the relevant banking sector’s assets and reserves. Many expected limited near-term use of standard refinancing operations, reflecting their liquidity and other available funding. This is a dated snapshot of intentions, preceding the reform rather than measuring October 2026 conditions. It nevertheless helps explain why a schedule change can have very different effects across institutions. ^[16]

Measuring the impact would require a line-by-line revaluation. The inputs would include assets actually held, those already encumbered, the relevant ratings, maturities, prices, documentation quality and the borrowing they cover. The analysis would then have to add available reserves, expected cash outflows, market funding alternatives and obstacles to transfers within banking groups.

The public documents reviewed cannot assemble those inputs for all banks or identify the institutions facing the largest constraints. Nor have we established an exhaustive comparison between the entire previous schedule and the forthcoming grid. The regulatory illustrations in this article change one attribute at a time within the new schedule. They identify sensitivities instead of manufacturing a euro area total.

The ECB’s stated objectives combine risk protection, consistency of treatment and sufficient collateral availability. A more generous framework exposes the public lender to greater potential losses on default; more conservative requirements commit additional assets for the same borrowing. The economic outcome depends on calibration, existing buffers and alternative funding opportunities. ^{[3] [19]}

A funding option has to be operational

Being able to pledge an asset quickly has value even while the option remains unused. It offers a route to meeting deposit outflows, settling transactions or replacing maturing funding. Its effectiveness depends on operational preparation as well as on the asset itself.

The ECB accordingly encourages counterparties to test access to standard refinancing operations voluntarily at least once a year from 2026. The purpose is practical: to make sure procedures work before they are needed on a larger scale. Such a test is part of routine treasury preparedness. ^[18]

The revised rules make that preparation tangible. A second rating can become decisive. A documented repayment schedule can support a different collateral value. The maximum maturity of an extendible instrument matters more than the repayment date expected in normal conditions. And an identical €10 million reduction in coverage leaves very different cushions depending on funding already used.

Understanding the next customer loan still requires looking at policy rates and bank capital. It also requires examining what the bank can mobilise, at what value and how quickly. The balance sheet records what a bank owns. Its collateral file reveals part of what it can do with those assets.

Further reading

The repo market shows how securities support funding between private-sector institutions. Our guide to the ECB balance sheet and TARGET2 explains where central bank loans and reserves appear. The investigation into QE losses examines the accounting effects of securities purchases and their funding.

Primary documents and sources

1. [1] · ECB · 2026-09-29ECB amends monetary policy implementation guidelines as part of regular review
2. [2] · ECB · 2026-09-29Guideline ECB/2026/26 amending the General Documentation
3. [3] · ECB · 2026-09-29Guideline ECB/2026/27 amending valuation haircuts
4. [4] · ECB · 2026-09-29FAQs on the use of external ratings in the Eurosystem collateral framework
5. [5] · ECB · accessed 4 Oct 2026Eurosystem credit assessment framework (ECAF)
6. [6] · ECB · accessed 4 Oct 2026Collateral valuation
7. [7] · ECB · accessed 4 Oct 2026What are haircuts?
8. [8] · Banque de France · accessed 4 Oct 2026Le collatéral de politique monétaire
9. [9] · Bank of England · 2014-03-14Money creation in the modern economy
10. [10] · ECB · 2025-03-18Managing liquidity in a changing environment
11. [11] · ECB · 2024-03-13ECB announces changes to the operational framework for implementing monetary policy
12. [12] · ECB · 2026-06-25ECB to integrate non-financial credit claim portfolios into general collateral framework, phasing out temporary measures
13. [13] · Banque de France · 2025-12-05La Banque de France met fin au dispositif de crise permettant l’acceptation des créances privées garanties par l’État (PGE) en collatéral
14. [14] · ECB · 2026-07-28The bank collateral channel of monetary policy: evidence from securities losses
15. [15] · ECB · 2026-03-27Securities losses and the bank collateral channel of monetary transmission
16. [16] · ECB · accessed 4 Oct 2026Bank treasurer survey 2025
17. [17] · ECB · accessed 4 Oct 2026Annual Report 2025
18. [18] · ECB · 2025-12-19Counterparties invited to regularly test their operational readiness to access Eurosystem standard refinancing operations
19. [19] · ECB · accessed 4 Oct 2026The valuation haircuts applied to eligible marketable assets for ECB credit operations
20. [20] · ECB · 2026-07-24Decisions taken by the Governing Council of the ECB (in addition to decisions setting interest rates)
21. [21] · ECB · 2026-10-02Decisions taken by the Governing Council of the ECB (in addition to decisions setting interest rates)