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Collateral in Monetary Policy Operations

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  • Francisco J. Callado†Muñoz
  • Fernando Restoy

Abstract

We present a portfolio decision model for banks that permits us to estimate the costs associated with the need to collateralise loans from the central bank. This allows us to calibrate the difference between a restrictive collateral eligibility framework for open market operations, such as that applied by the FED, with a more flexible approach such as that of Eurosystem. We also document that there could potentially appear relevant cost differences between the various collateral mobilisation procedures (pooling and earmarking) that currently coexist in the eurozone.

Suggested Citation

  • Francisco J. Callado†Muñoz & Fernando Restoy, 2011. "Collateral in Monetary Policy Operations," European Financial Management, European Financial Management Association, vol. 17(2), pages 286-304, March.
    • Handle: RePEc:bla:eufman:v:17:y:2011:i:2:p:286-304
    DOI: 10.1111/j.1468-036X.2009.00504.x
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    References listed on IDEAS

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    5. Esa Jokivuolle & Samu Peura, 2003. "Incorporating Collateral Value Uncertainty in Loss Given Default Estimates and Loan‐to‐value Ratios," European Financial Management, European Financial Management Association, vol. 9(3), pages 299-314, September.
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