The collateral framework is a part of the monetary policy framework. Through its monetary policy operations, a central bank provides central bank money against eligible collateral, as determined by the collateral framework. To put the role of the Eurosystem's collateral framework in context, this chapter sketches out the main features of the ECB's monetary policy framework and updates to these over time. It also provides data on the magnitudes of the ECB's operations over time and therefore the value of collateral that needs to be pledged by banks, in the case of repos, or purchased. This is then compared to the monetary base and the Eurosystem's consolidated balance sheet, which helps to illustrate the centrality of the collateral framework.

Table 3.1 lists the main instruments of monetary policy implementation in the euro area and significant modifications to these from January 1999 to January 2015. The ECB's basic approach is to use reverse operations that inject liquidity into the banking sector through repos, or collateralized loans. Banks’ counterparties in these transactions are their respective national central banks (NCBs). Some NCBs operate with systems where the pledged collateral is earmarked for a particular operation, but most use a pooling system in which the total collateral value of each bank's collateral inventory account with its NCB is used to cover all its loans across all operations. For example, a bank that has outstanding repos, or loans, of 1 billion needs to have eligible collateral with an official collateral value of at least 1 billion in its collateral pool, or account. Subject to the eligibility and value constraints, banks have complete discretion over what collateral they pledge in Eurosystem operations.

Each new reverse operation offers banks the opportunity to refinance, or roll over, maturing repos (or loans). They are therefore referred to as refinancing operations.

Table 3.1 delineates the evolution of the two most important types of refinancing operations, namely the main refinancing operations (MROs) and the longer-term refinancing operations (LTROs). The MROs were initially run as fixed rate tenders with a limited allotment.