The paper describes the architecture and the underlying methodology of Banca d'Italia's 'In-House Credit Assessment System' (ICAS), which estimates the default probabilities of Italy's non-financial firms and allows banks to pledge the loans made to these firms as collateral for monetary policy operations. The system provides banks with an important tool for expanding liquidity sources and gives the banking system an incentive for granting loans to firms and households.
The role of BI-ICAS has become even more important since the Eurosystem eased the monetary policy collateral framework in response to the financial crisis triggered by the COVID-19 pandemic. This importance is confirmed by the significant increase, recorded in 2020, of the value of bank loans pledged as collateral with BI-ICAS and the number of bank counterparties using this system.
