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Is collateral eligibility priced?

Author

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  • Corradin, Stefano

Abstract

In periods of liquidity crises, a central bank can enlarge the group of securities that are eligible as collateral for borrowing from its facilities. All other things being equal, the price of newly eligible securities should go up, owing to the limited ability of financial institutions to borrow against them. This article provides new evidence that changes in the Eurosystem eligibility criteria had a positive price impact on targeted securities during the financial and euro area sovereign debt crisis. JEL Classification: G01, G12

Suggested Citation

  • Corradin, Stefano, 2017. "Is collateral eligibility priced?," Research Bulletin, European Central Bank, vol. 31.
    • Handle: RePEc:ecb:ecbrbu:2017:0031:
    Note: 1103497
    as

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    References listed on IDEAS

    as
    1. Nicolae Gârleanu & Lasse Heje Pedersen, 2011. "Margin-based Asset Pricing and Deviations from the Law of One Price," The Review of Financial Studies, Society for Financial Studies, vol. 24(6), pages 1980-2022.
    2. Corradin, Stefano & Rodriguez-Moreno, Maria, 2016. "Violating the law of one price: the role of non-conventional monetary policy," Working Paper Series 1927, European Central Bank.
    3. Adam Ashcraft & Nicolae Gârleanu & Lasse Heje Pedersen, 2011. "Two Monetary Tools: Interest Rates and Haircuts," NBER Chapters, in: NBER Macroeconomics Annual 2010, volume 25, pages 143-180, National Bureau of Economic Research, Inc.
    4. Gorton, Gary & Metrick, Andrew, 2012. "Securitized banking and the run on repo," Journal of Financial Economics, Elsevier, vol. 104(3), pages 425-451.
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    More about this item

    Keywords

    collateral eligibility; funding liquidity;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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