Overview of central banks’ in-house credit assessment systems in the euro area
2021
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.
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