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Using bank loans as collateral in Europe : The role of liquidity and funding purposes

Author

Listed:
  • François Koulischer

    (Banque centrale du Luxembourg)

  • Patrick Van Roy

    (NBB, Prudential Policy and Financial Stability, and Université libre de Bruxelles)

Abstract

We show that illiquid assets such as bank loans are used by euro area banks both as central bank collateral for short-term liquidity insurance purposes and for longer-term funding purposes for issuing covered bonds or asset-backed securities. We then explore the determinants of the choice of using bank loans for short-term liquidity insurance purposes or long-term funding purposes focusing on the case of Belgian banks. We find that (1) loan types are key to alleviating asymmetries of information; (2) regulatory requirements play a major role in the choices of banks, both directly and indirectly through clientele effects and (3) there are significant switching costs between the various uses of bank loans as collateral so historical decisions also determine the use of bank loans as collateral.

Suggested Citation

  • François Koulischer & Patrick Van Roy, 2017. "Using bank loans as collateral in Europe : The role of liquidity and funding purposes," Working Paper Research 318, National Bank of Belgium.
    • Handle: RePEc:nbb:reswpp:201703-318
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    File URL: https://www.nbb.be/doc/ts/publications/wp/wp318en.pdf
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    Cited by:

    1. Cassola, Nuno & Koulischer, François, 2019. "The collateral channel of open market operations," Journal of Financial Stability, Elsevier, vol. 41(C), pages 73-90.
    2. Matteo Salto & Stefano Zedda & Stefan Zeugner, 2020. "Using Supra-Covered Bonds to Enhance Liquidity in the Euro Area: Assessment of Advantages for the Banking Sector," JRFM, MDPI, vol. 13(12), pages 1-10, November.

    More about this item

    Keywords

    Collateral; securitisation; bank loans; liquidity;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G01 - Financial Economics - - General - - - Financial Crises
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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