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1.3.1. Minimum requirements for the recognition of financial collateral under all Approaches and Methods

Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions (recast) (Text with EEA relevance) · European Union

For the recognition of financial collateral and gold, the following conditions shall be met. Low correlation The credit quality of the obligor and the value of the collateral must not have a material positive correlation. Securities issued by the obligor, or any related group entity, are not eligible. This notwithstanding, the obligor's own issues of covered bonds falling within the terms of Annex VI, Part 1, points 68 to 70 may be recognised as eligible when they are posted as collateral for repurchase transactions, provided that the first paragraph of this point is complied with. Legal certainty Credit institutions shall fulfil any contractual and statutory requirements in respect of, and take all steps necessary to ensure, the enforceability of the collateral arrangements under the law applicable to their interest in the collateral. Credit institutions shall have conducted sufficient legal review confirming the enforceability of the collateral arrangements in all relevant jurisdictions. They shall re‐conduct such review as necessary to ensure continuing enforceability. Operational requirements The collateral arrangements shall be properly documented, with a clear and robust procedure for the timely liquidation of collateral. Credit institutions shall employ robust procedures and processes to control risks arising from the use of collateral — including risks of failed or reduced credit protection, valuation risks, risks associated with the termination of the credit protection, concentration risk arising from the use of collateral and the interaction with the credit institution's overall risk profile. The credit institution shall have documented policies and practices concerning the types and amounts of collateral accepted. Credit institutions shall calculate the market value of the collateral, and revalue it accordingly, with a minimum frequency of once every six months and whenever the credit institution has reason to believe that there has occurred a significant decrease in its market value. Where the collateral is held by a third party, credit institutions must take reasonable steps to ensure that the third party segregates the collateral from its own assets.

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Source: EUR-Lex (Cellar) · retrieved 2026-10-09 · Text as adopted (Official Journal); later amendments are not incorporated in this text.