Opinion of the European Central Bank of 12 July 2016 on the exclusion of set-off rights with respect to claims mobilised as collateral with a central bank of the European System of Central Banks (CON/2016/37)
Date: 2016-07-12
Institutions: European Central Bank
Subjects: France, central bank, claim, credit, debt reduction, financial stability, national law, payment system

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 12 July 2016  

on the exclusion of set-off rights with respect to claims mobilised as collateral with a central bank 

of the European System of Central Banks 

(CON/2016/37) 

Introduction and legal basis 

On  10  June  2016  the  European  Central  Bank  (ECB)  received  a  request  from  the  French  Ministry  of 

Finance  and  Public  Accounts  for  an  opinion  on  a  draft  legal  provision  excluding  the  exercise  of  any 

contractual or statutory right to set-off with respect to credit claims mobilised as collateral with a central 

bank of the European System of Central Banks (ESCB) (hereinafter the ‘draft law’). 

The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 

Functioning of the European Union and the third, fifth and sixth indents of Article 2(1) of Council Decision 
98/415/EC1, as the draft law relates to national central banks, payment and settlement systems, and the 

rules  applicable  to  financial  institutions  insofar  as  they  materially  influence  the  stability  of  financial 

institutions and markets. In accordance with the first sentence of Article 17.5 of the Rules of Procedure of 

the European Central Bank, the Governing Council has adopted this opinion. 

1.  

Purpose of the draft law 

1.1  The purpose of the draft law  is to introduce  in French law a specific provision to  eliminate set-off 

risks  resulting  from  the  acceptance  by  the  Banque  de  France  and  other  ESCB  central  banks  of 

credit  claims  as  eligible  collateral  in  ESCB  monetary  policy,  intraday  credit  and  other  credit 

operations.  

1.2  Set-off  rights  arise  in  situations  where  a  debtor  has  a  legal  right  to  set-off  or  net  its  obligations 

towards  a  creditor  by  the  amount  of  outstanding  claims  the  debtor  has  against  the  creditor,  e.g. 

bank deposits. A set-off risk is the risk of loss for the ESCB  which arises  when  an  ESCB central 

bank enforces a credit claim presented as collateral by a defaulting counterparty where the credit 

claim mobilised as collateral would have lost part of its value as a result of set-off.  

1.3 

In  order  to  eliminate  set-off  risk  the  draft  law  provides  that,  notwithstanding  any  provision  or 

stipulation to the contrary, no right to set-off may give rise to the extinction, in full or in part, of credit 

claims submitted as collateral to a central bank that forms part of the ESCB. 

1  

Council  Decision  98/415/EC  of  29 June  1998  on  the  consultation  of  the  European  Central  Bank  by  national 
authorities regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42). 

 
 
 
 
 
                                                 
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2. 

General observations 

2.1  Credit  claims  have  been  accepted  as  eligible  collateral  for  Eurosystem  monetary  policy  and 
intraday credit operations since 1 January 20072. The scope for accepting eligible credit claims has 

been  extended  by  the  additional  credit  claims  (ACC)  framework  that  was  implemented  in 

December 2011 as a temporary measure. Under the ACC framework other types of credit claims, 

such  as  residential  mortgages  or  pools  of  credit  claims,  provided  they  meet  certain  additional 

specific criteria, qualify as eligible collateral in certain euro area jurisdictions, including France. 

2.2  The ECB considers the draft law’s aim of excluding set-off risks associated with the acceptance of 

credit  claims  as  collateral  in  Eurosystem  credit  operations  as  legitimate  and  fully  in  line  with  the 

Statute of the  European System of Central Banks and of the European Central  Bank (hereinafter 

the  ‘Statute  of  the  ESCB’).  Protecting  the  ESCB  against  any  potential  loss  arising  from  the 

acceptance of such collateral is closely linked to the requirement laid down in the second indent of 

Article 18.1 of the Statute of the ESCB, pursuant to which lending by the ESCB central banks must 

be based on adequate collateral. In addition, adequately addressing set-off risks also facilitates the 
continued  eligibility  of  credit  claims  as  eligible  collateral  in  Eurosystem  credit  operations 3,  and 

thereby contributes to the efficiency of the transmission of monetary policy to the real economy.  

2.3  The ECB notes that, in line with the draft law, several other euro area Member States have enacted 

statutory  provisions  which  exclude  set-off  risks  when  credit  claims  are  mobilised  as  collateral  for 

central bank operations. The approach adopted by these Member States differs as to the scope of 

the  parties  benefitting  from  the  exclusion.  In  certain  Member  States  statutory  provisions  only 

exclude  set-off  rights  for  credit  claims  mobilised  as  collateral  for  operations  with  the  particular 

Member  State’s  central  bank.  Some  Member  States  also  have  statutory  provisions  that  provide 

protection for the ECB and other ESCB central banks. In one Member State, the exclusion of set-

off  rights  applies  to  operations  with  all  Union  central  banks  and  any  third  party  to  whom  a  credit 
claim may subsequently be transferred by a central bank4. 

2.4  Against  this  background,  the  draft  law  excludes  all  rights  to  set-off  credit  claims  mobilised  as 
collateral  with  an  ESCB  central  bank 5.  This  exclusion  is  not  subject  to  any  additional  formalities 

and applies regardless of any other provisions or stipulations, whether laid down in other legal acts 

or by  way of contract. The ECB  welcomes the initiative of the French  authorities to  exclude such 

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3  

4  

5  

See  ‘Decisions  taken  by  the  Governing  Council  of  the  ECB  (in  addition  to  decisions  setting  interest  rates)’  for                
July 2005 and the related ECB press release of 22 July 2005 entitled ‘Eurosystem collateral framework: Inclusion of 
non-marketable assets in the Single List’, available on the ECB’s website at www.ecb.europa.eu. 
In 2008 the European Commission noted that the possible exercise of set-off rights by the debtor of the credit claim 
provided as collateral could discourage the use of credit claims as collateral. This is because ‘the collateral can as 
such disappear if the debtor exercises set-off right vis-à-vis the creditors of the credit claim and vis-à-vis persons to 
which the creditors assigned, pledged  or otherwise mobilised the credit claim as collateral.’ See ‘Commission staff 
working  document  accompanying  the  Proposal  for  a  Directive  of  the  European  Parliament  and  of  the  Council 
amending the Settlement Finality Directive and the Financial Collateral Directive – Impact Assessment’, April 2008, 
available on Eur-lex website at www.eur-lex.europa.eu. 
See  the  Law  on  the  Autonomy  of  Banco  de  España,  sixth  additional  provision,  paragraph  (4)(e)  introduced  by  the 
Royal Decree-Law 2/2012 on the reorganisation of the financial sector. 
The ECB notes that the legal technique used for the mobilisation of credit claims with the Banque de France is the 
title  transfer  financial  collateral  arrangement  under  Article  L.211-38  of  the  French  monetary  and  financial  code 
(COMOFI).  Under  Article  L.211-38  of  the  COMOFI  the  constitution  and  opposability  of  such  title  transfers  are  not 
subject to any particular formality. 

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set-off risks6. In, particular, the ECB welcomes the broad scope of application of the draft law and 

the  fact  that  its  provisions  will  apply  to  credit  claims  mobilised  as  collateral  in  operations  with  all 

ESCB central banks.  

2.5  However,  the  ECB  considers  that  in  order  to  increase  the  effectiveness  of  the  protection  against 

set-off  rights,  the  draft  law  should  also  apply  to  any  third  party  purchasing  credit  claims  from  an 

ESCB central bank. In fact, in the event of a default of a central bank’s counterparty, the collateral 

represented  by  the  credit  claims,  would  have  to  be  enforced.  The  central  bank  enforcing  the 

collateral  as  the  legal  owner  of  the  credit  claims,  might  decide  to  hold  the  credit  claims  in  its 

portfolio or sell them to a third party. If the credit claims are sold to a third party, the ESCB central 

banks  would  only  be  fully  protected  against  the  set-off  risk  if  the  protection  afforded  to  ESCB 

central  banks  was  transferred  together  with  the  credit  claims  to  the  third-party  purchaser. 

Otherwise the applicable set-off rights might continue to affect the value at which the ESCB central 

banks  could  sell  the  credit  claims.  In  this  respect,  the  ECB  suggests  that  in  order  to  ensure  full 

effectiveness of the draft law when a central bank wants to sell its credit claims to a third party, the 

draft law should explicitly extend the protection against set-off rights to third-party purchasers.   

This opinion will be published on the ECB’s website.  

Done at Frankfurt am Main, 12 July 2016. 

[signed] 

The President of the ECB 

Mario DRAGHI 

6  

The  ECB  already  noted  in  its  response  to  the  Commission’s  Green  Paper  on  establishing  a  capital  market  union 
(CMU),  that  while  set-off  rights  can  currently  be  validly  waived  by  debtors  pursuant  to  the  Financial  Collateral 
Directive (FCD), the divergence in the transposition and interpretation of the FCD greatly undermines the underlying 
rationale of protecting collateral takers of this provision, which could be mitigated if set-off were fully excluded with 
respect  to  credit  claims  mobilised  as  collateral  with  central  banks.  See  ‘Building  a  Capital  Markets  Union  – 
Eurosystem  contribution  to  the  European  Commission’s  Green  Paper’,  p.  24,  available  on  the  ECB’s  website  at 
www.ecb.europa.eu. 

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