Central Bank Collateral Frameworks: Principles and Policies

By Rebecca McCaughrin, Simon T Gray, Alexandre Chailloux

September 1, 2008

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Format: Chicago

Rebecca McCaughrin, Simon T Gray, and Alexandre Chailloux. Central Bank Collateral Frameworks: Principles and Policies, (USA: International Monetary Fund, 2008) accessed December 3, 2024

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.

Subject: Banking, Collateral, Liquidity, Open market operations, Securities

Keywords: Adverse selection, Foreign exchange, Interest rate, Monetary policy, Money market, Opportunity cost, Structural surplus, WP

Publication Details

Pages:

67
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2008/222
Stock No:

WPIEA2008222
ISBN:

9781451870800
ISSN:

1018-5941

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