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Collateralization and Financial Stability

In: CNB Financial Stability Report 2013/2014

Author

Listed:
  • Vilma Dingova
  • Vaclav Hausenblas
  • Zlatuse Komarkova

Abstract

From a general perspective, collateralisation of exposures is a key tool for mitigating the idiosyncratic risks of financial institutions. If, however, the use of collateral in the financial system exceeds a certain threshold it can pose a risk to financial stability. Collateral use is procyclical. Heavy collateral use creates a network of direct and indirect linkages in the financial system, making it more vulnerable to contagion. It also fosters general growth in asset encumbrance in borrowers’ balance sheets. This article looks at collateral use, asset encumbrance and related sources of systemic risk and maps out this phenomenon in the Czech financial system.

Suggested Citation

  • Vilma Dingova & Vaclav Hausenblas & Zlatuse Komarkova, 2014. "Collateralization and Financial Stability," Occasional Publications - Chapters in Edited Volumes, in: CNB Financial Stability Report 2013/2014, chapter 0, pages 137-147, Czech National Bank.
    • Handle: RePEc:cnb:ocpubc:fsr1314/3
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    References listed on IDEAS

    as
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    3. Houben, A. & Slingenberg, J W., 2013. "Collateral scarcity and asset encumbrance: implications for the European financial system," Financial Stability Review, Banque de France, issue 17, pages 197-206, April.
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    5. Mr. Manmohan Singh, 2010. "Collateral, Netting and Systemic Risk in the OTC Derivatives Market," IMF Working Papers 2010/099, International Monetary Fund.
    6. Ingo Fender & Ulf Lewrick, 2013. "Mind the gap? Sources and implications of supply-demand imbalances in collateral asset markets," BIS Quarterly Review, Bank for International Settlements, September.
    7. Mr. Manmohan Singh, 2013. "The Changing Collateral Space," IMF Working Papers 2013/025, International Monetary Fund.
    8. Mr. Manmohan Singh & Mr. Peter Stella, 2012. "Money and Collateral," IMF Working Papers 2012/095, International Monetary Fund.
    9. Lorie Zorn & Alejandro García, 2011. "Central Bank Collateral Policy: Insights from Recent Experience," Bank of Canada Review, Bank of Canada, vol. 2011(Spring), pages 37-45.
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    Cited by:

    1. Michal Dvorak & Marcela Gronychova & Vaclav Hausenblas & Zlatuse Komarkova, 2016. "Could the Czech Insurance Sector Be a Source of Systemic Risk?," Occasional Publications - Chapters in Edited Volumes, in: CNB Financial Stability Report 2015/2016, chapter 0, pages 116-126, Czech National Bank.
    2. Adam Kucera & Milan Szabo, 2021. "Interconnectedness and contagion in the Czech financial system," Occasional Publications - Chapters in Edited Volumes,, Czech National Bank.

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