Central Bank Collateral Frameworks: Principles and Policies

69 Pages Posted: 8 Oct 2008

See all articles by Simon Gray

Simon Gray

Bank of England

Alexandre Chailloux

International Monetary Fund (IMF)

Rebecca McCaughrin

International Monetary Fund (IMF)

Date Written: September 2008

Abstract

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.

Keywords: Central bank policy, Financial crisis, Risk management, Emerging markets, Price incentives, Foreign exchange, Liquidity, Capital flows, Working Paper

Suggested Citation

Gray, Simon and Chailloux, Alexandre Bruno and McCaughrin, Rebecca, Central Bank Collateral Frameworks: Principles and Policies (September 2008). IMF Working Paper No. 08/222, Available at SSRN: https://ssrn.com/abstract=1278433

Simon Gray (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Alexandre Bruno Chailloux

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Rebecca McCaughrin

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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