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Collateral eligibility of corporate debt in the Eurosystem

Author

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  • Pelizzon, Loriana
  • Riedel, Max
  • Simon, Zorka
  • Subrahmanyam, Marti G.

Abstract

We study the many implications of the Eurosystem collateral framework for corporate bonds. Using data on the evolving collateral eligibility list, we identify the first inclusion dates of bonds and issuers and use these events to find that the increased supply and demand for pledgeable collateral following eligibility (a) increases activity in the corporate securities lending market, (b) lowers eligible bond yields, and (c) affects bond liquidity. Thus, corporate bond lending relaxes the constraint of limited collateral supply and thereby improves market functioning.

Suggested Citation

  • Pelizzon, Loriana & Riedel, Max & Simon, Zorka & Subrahmanyam, Marti G., 2024. "Collateral eligibility of corporate debt in the Eurosystem," Journal of Financial Economics, Elsevier, vol. 153(C).
    • Handle: RePEc:eee:jfinec:v:153:y:2024:i:c:s0304405x23002179
    DOI: 10.1016/j.jfineco.2023.103777
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    Cited by:

    1. Geng, Guangjie & Han, Zhixuan & Wu, Hongli & Cheng, Miao & WANG, RAN & Liu, Huan, 2024. "Collateral policy of the central bank and corporate financing costs: Evidence from China," The North American Journal of Economics and Finance, Elsevier, vol. 70(C).
    2. Abiry, Raphael & Ferdinandusse, Marien & Ludwig, Alexander & Nerlich, Carolin, 2022. "Climate change mitigation: How effective is green quantitative easing?," SAFE Working Paper Series 376, Leibniz Institute for Financial Research SAFE.
    3. Coen, Jamie & Coen, Patrick & Hüser, Anne-Caroline, 2024. "Collateral demand in wholesale funding markets," Bank of England working papers 1082, Bank of England.
    4. Yannis Dafermos, 2022. "Climate change, central banking and financial supervision: beyond the risk exposure approach," Chapters, in: Sylvio Kappes & Louis-Philippe Rochon & Guillaume Vallet (ed.), The Future of Central Banking, chapter 8, pages 175-194, Edward Elgar Publishing.
    5. Schuster, Florian, 2023. "Spreads auf Staatsanleihezinsen, der EZB-Sicherheitenrahmen und Peripherieprämien in der Eurozone," Papers 277910, Dezernat Zukunft - Institute for Macrofinance, Berlin.
    6. Kubitza, Christian, 2021. "Investor-driven corporate finance: Evidence from insurance markets," ICIR Working Paper Series 43/21, Goethe University Frankfurt, International Center for Insurance Regulation (ICIR).

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    More about this item

    Keywords

    Collateral policy; European Central Bank (ECB); Corporate bonds; Eligibility premium;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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