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Central Bank Collateral Frameworks

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  • Rebecca McCaughrin
  • Simon Gray
  • Alexandre Chailloux
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    Abstract

    Central bank collateral policies came under pressure with the 2007-08 financial market crisis. This paper addresses the rationale for and constraints in taking collateral, and recent practices in different collateral frameworks. It then considers the risks of adverse selection. The paper concludes that (i) the collateral framework needs to include market incentives; (ii) central banks face trade-offs between risk and counterparty access; (iii) emerging markets may see pressure on collateral policies in coming years; and (iv) further work is required to develop pricing incentives and the structure of central bank facilities, both during normal times and in periods of market stress.

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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=22343
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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/222.

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    Length: 67
    Date of creation: 01 Sep 2008
    Date of revision:
    Handle: RePEc:imf:imfwpa:08/222

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    Related research

    Keywords: Central bank policy; Risk management; Emerging markets; Price incentives; Liquidity; Capital flows; collateral; credit; repo; pricing; counterparty; prices; payment systems; checks; reserve requirements; refinancing; pools; rtgs; bills of exchange; payment system; purchases; registration; credit cards; secured lending; reverse repo; cash payments; confirmation; cash flows; custody; counterpart; payments; current account; ratings of banks;

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    Cited by:
    1. Hans-Werner Sinn & Timo Wollmershaeuser, 2011. "Target Loans, Current Account Balances and Capital Flows: The ECB’s Rescue Facility," NBER Working Papers 17626, National Bureau of Economic Research, Inc.
    2. Maria J. Nieto & Gillian G. Garcia, 2012. "The insufficiency of traditional safety nets: what bank resolution fund for Europe?," Journal of Financial Regulation and Compliance, Emerald Group Publishing, Emerald Group Publishing, vol. 20(2), pages 116-146, May.
    3. Peter Stella, 2009. "The Federal Reserve System Balance Sheet-What Happened and Why it Matters," IMF Working Papers 09/120, International Monetary Fund.
    4. Karagiannis, Stelios & Panagopoulos, Yannis & Vlamis, Prodromos, 2010. "Interest rate pass-through in Europe and the US: Monetary policy after the financial crisis," Journal of Policy Modeling, Elsevier, Elsevier, vol. 32(3), pages 323-338, May.
    5. Bednarik, Radek, 2008. "Analýza volatility devizových kurzů vybraných ekonomik
      [The Analysis of Volatility of Selected Countries' Exchange Rates]
      ," MPRA Paper 15046, University Library of Munich, Germany.
    6. Hans-Werner Sinn & Timo Wollmershäuser, 2012. "Target Balances and the German Financial Account in Light of the European Balance-of-Payments Crisis," CESifo Working Paper Series 4051, CESifo Group Munich.
    7. Roland Döhrn & György Barabas & Heinz Gebhardt & Tobias Kitlinksi & Martin Micheli & Simeon Vosen & Lina Zwick, 2013. "Die wirtschaftliche Entwicklung im Inland: Binnennachfrage trägt Aufschwung," RWI Konjunkturbericht, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, pages 64, 09.

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