Journal of Financial Market Infrastructures

Risk.net

Central banks and foreign collateral

Jeannette Capel

ABSTRACT

As a response to the financial crisis of 2007-9 central banks are becoming more inclined to accept foreign collateral to facilitate the provision of international liquidity. However, foreign collateral is likely to affect the tasks that the central bank seeks to perform (monetary policy, payments systems and financial stability) as well as the efficiency of its own organization. In addition, the work of the prudential supervisor may be influenced by central bank acceptance of foreign collateral. So far, there is hardly any economic literature on this topic. This paper aims to give central bankers and prudential supervisors insight into how foreign collateral affects them.

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