The Banco de España in-house credit assessment system

Abstract

The implementation of monetary policy through traditional credit operations requires that counterparties provide adequate collateral. This collateral serves to protect the central bank providing the funding against losses that might adversely affect its financial independence and, ultimately, its credibility. It is therefore important for central banks to develop in-house capabilities to assess the risks associated with specific assets posted as collateral. The national central banks in the Eurosystem have the option of developing in-house credit assessment systems, known as ICASs. The Banco de España has used such systems to perform credit assessments of non-financial corporations since the late 1990s. It is extending the number and type of these systems with the ultimate aim of being in a position to accept loans extended to any Spanish non-financial corporation as collateral. With credit claims establishing themselves as important collateral assets in recent years, and in view of the synergies between the Banco de España in-house credit assessment system (ICAS BE) and other functions of the Banco de España, the next expansion phase of the ICAS BE is ready to begin. This entails the credit assessment of small and medium-sized enterprises (SMEs) in the country. The Eurosystem’s recent response to the COVID-19 crisis will be particularly influential in this regard, prompting very swift action to extend the scope of the ICAS BE.