Central Bank liquidity: ECMS is a game changer! - Vermeg

Central Bank liquidity: ECMS is a game changer!

/ A Euroclear and VERMEG whitepaper 
newsletter cover

Central Bank liquidity is only available with adequate collateral, and ECMS is a game changer

A whitepaper by Euroclear, in collaboration with VERMEG, highlights that Eurosystem central bank liquidity facilities are dependent on the vital  role collateral plays in the process and the fundamental changes the Eurosystem Collateral System (ECMS) will bring in November 2023.

The Eurosystem’s 19 individual National Central Bank (NCB) collateral systems will be replaced by a single harmonised system, the ECMS, in November 2023 and an orderly transition is vital to maintaining access to central bank liquidity facilities thereafter.

Why is collateral important in the process?

The European Central Bank (ECB) and the 19 Eurozone NCBs comprising the Eurosystem can only provide credit when it is backed up by adequate collateral. Central bank liquidity lines have been increasingly used to provide efficient and cost-effective everyday liquidity in the last decade, not just in times of crisis. As borrowing has increased over time, both the range and volume of eligibility collateral has also increased, more than doubling in over a decade. Mobilising global collateral is an increasingly complex process, but vital to efficient liquidity management.

Infrastructures play a significant role

As the pools of eligible collateral has expanded, infrastructures developed new tools and technologies to enable efficient global collateral management. Triparty services were introduced and have been adopted by the Eurosystem. Innovative solutions have supported the market’s ability to respond quickly in times of crisis and contributed greatly to market stability.

19 to 1

From November 2023, the 19 Eurosystem National Central Banks (NCBs) will migrate each of their existing collateral management systems to a new harmonised collateral management system: the Eurosystem Collateral Management System – ECMS. This new single system for managing pools of assets used as collateral in Eurosystem credit operations aims to:

  • Reduce European fragmentation
  • Boost operational and cost efficiencies
  • Foster a stronger capital markets union

Continued access to Eurosystem credit facilities will be dependent on a successful transition to ECMS.

Multi-pooling collateral

The ECMS will support multi-pooling functionality which allows counterparties to hold collateral pools in the ECMS in multiple locations, giving counterparts flexibility in their global collateral management. Some non-marketable assets, such as certain credit claims, will be recorded at the NCB level and ECMS updated to provide an accurate overall position.

Euroclear and VERMEG

Euroclear and VERMEG are developing their own solutions to enable efficient access to ECMS. Euroclear’s Central Bank Access service is available through Euroclear Bank and the ESES CSDs whilst VERMEG’s Easy Collateral provides a platform for connecting to the ECMS.

Note to editors

About VERMEG

VERMEG is a specialized software house covering three main market segments in financial services: Collateral management & Asset Servicing, Regulatory reporting and Digital transformation.

VERMEG is the number one provider worldwide of collateral management solutions for Central Banks.

Its business solutions have been designed to address the challenges linked to the transformation of the financial services industry, but also to support these players in the overhaul of their information system; through cost reductions and time-to-market control. In addition to offering standard software solutions that meet evolving digitized needs, VERMEG provides tailor-made solutions based on our own tools, project and business expertise.

VERMEG has over 1500 employees and supports more than 550 clients in 40

countries.

About Euroclear

Euroclear Group is the financial industry’s trusted provider of post trade services. Euroclear provides settlement and custody of domestic and cross-border securities for bonds, equities and derivatives to investment funds. Euroclear is a proven, resilient capital market infrastructure committed to delivering risk-mitigation, automation and efficiency at scale for its global client franchise.

The Euroclear Group comprises Euroclear Bank, the International CSD, as well as Euroclear Belgium, Euroclear Finland, Euroclear France, Euroclear Nederland, Euroclear Sweden and Euroclear UK & International. The Euroclear Group settled the equivalent of EUR 992 trillion in securities transactions in 2021, representing 295 million domestic and cross-border transactions, and held EUR 37.6 trillion in assets for clients by end 2021.