Risky Risk control

The quantitative and qualitative extension of eligible collateral by the Eurosystem since the beginning of the financial crisis was the basis for a strongly extensive liquidity supply to the financial markets via the Eurosystem. Control over the risks associated with this supply of liquidity has gained growing importance in recent years as a result. Matthias Brendel, financial journalist, Jakob Eberl and Christopher Weber, Center for Economic Studies at the University of Munich, discuss how the risks can be countered via the definition of eligible collateral and establishing valuation haircuts by citing their implementation in the Eurosystem. The risk control measures defined by the European Central Bank leave leeway in the assessment of bonds that lead to a weakening of risk controls and can be the cause of fresh risks. This article offers five recommendations for effective risk minimisation based on an analysis of the risk control framework and taking into account its central implementation in the Eurosystem.