Overview of Central Banks’ In-house Credit Assessment Systems in the Euro Area

60 Pages Posted: 9 Dec 2021 Last revised: 11 Apr 2022

See all articles by Laura Auria

Laura Auria

Deutsche Bundesbank

Markus Bingmer

Deutsche Bundesbank

Carlos Mateo Caicedo Graciano

Banque de France

Clémence Charavel

Banque de France

Sergio Gavilá

Banco de España

Alessandra Iannamorelli

Bank of Italy

Aviram Levy

Bank of Italy

Alfredo Maldonado

Banco de España

Florian Resch

Oesterreichische Nationalbank (OeNB)

Anna Maria Rossi

Bank of Italy

Stephan Sauer

European Central Bank (ECB)

Date Written: December 7, 2021

Abstract

The in-house credit assessment systems (ICASs) developed by euro area national central banks (NCBs) are an important source of credit risk assessment within the Eurosystem collateral framework. They allow counterparties to mobilise as collateral the loans (credit claims) granted to non-financial corporations (NFCs). In this way, ICASs increase the usability of non-marketable credit claims that are normally not accepted as collateral in private market repo transactions, especially for small and medium-sized banks that lend primarily to small and medium-sized enterprises (SMEs). This ultimately leads not only to a widened collateral base and an improved transmission mechanism of monetary policy, but also to a lower reliance on external sources of credit risk assessment such as rating agencies. The importance of ICASs is exemplified by the collateral easing measures adopted in April 2020 in response to the coronavirus (COVID-19) crisis. The measures supported the greater use of credit claim collateral and, indirectly, increased the prevalence of ICASs as a source of collateral assessment.

This paper analyses in detail the role of ICASs in the context of the Eurosystem’s credit operations, describing the relevant Eurosystem guidelines and requirements in terms of, among other factors, the estimation of default probabilities, the role of statistical models versus expert analysis, input data, validation analysis and performance monitoring. It then presents the main features of each of the ICASs currently accepted by the Eurosystem as credit assessment systems, highlighting similarities and differences.

Keywords: credit assessments, credit risk models, credit claims, ratings, ICAS

JEL Classification: E58

Suggested Citation

Auria, Laura and Bingmer, Markus and Caicedo Graciano, Carlos Mateo and Charavel, Clémence and Gavilá, Sergio and Iannamorelli, Alessandra and Levy, Aviram and Maldonado, Alfredo and Resch, Florian and Rossi, Anna Maria and Sauer, Stephan, Overview of Central Banks’ In-house Credit Assessment Systems in the Euro Area (December 7, 2021). Banco de Espana Occasional Paper No. 2131, Available at SSRN: https://ssrn.com/abstract=3979652 or http://dx.doi.org/10.2139/ssrn.3979652

Laura Auria (Contact Author)

Deutsche Bundesbank

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Markus Bingmer

Deutsche Bundesbank

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Carlos Mateo Caicedo Graciano

Banque de France ( email )

31 rue Croix-des-Petits-Champs
Paris, 75001
France
+33142929650 (Phone)

HOME PAGE: http://https://www.banque-france.fr/

Clémence Charavel

Banque de France

Paris
France

Sergio Gavilá

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Alessandra Iannamorelli

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Aviram Levy

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

Alfredo Maldonado

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Florian Resch

Oesterreichische Nationalbank (OeNB) ( email )

Otto-Wagner-Platz 3, PO Box 61
Vienna,
1010 Vienna, A-1011
Austria

Anna Maria Rossi

Bank of Italy

Via Nazionale 91
Rome, 00184
Italy

Stephan Sauer

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

HOME PAGE: http://www.ecb.int

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