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Illiquid Collateral and Bank Lending during the European Sovereign Debt Crisis

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  • J. Barthélemy
  • V. Bignon
  • B. Nguyen

Abstract

We assess the effect of accepting illiquid assets as collateral at the central bank on banks’ lending activity. We study the lending activity of the 177 largest banks in the Euro area between 2011m1 and 2014m12 and the composition of their pool of collateral pledged with the Eurosystem. Panel regression estimates show that the banks that pledged more illiquid collateral with the Eurosystem increased their lending to non-financial firms and households: a one standard deviation increase in the volume of illiquid collateral increase lending by 0.6%.

Suggested Citation

  • J. Barthélemy & V. Bignon & B. Nguyen, 2017. "Illiquid Collateral and Bank Lending during the European Sovereign Debt Crisis," Working papers 631, Banque de France.
    • Handle: RePEc:bfr:banfra:631
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    Cited by:

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    2. Silvia Gabrieli & Claire Labonne, 2018. "Bad Sovereign or Bad Balance Sheets? Euro Interbank Market Fragmentation and Monetary Policy, 2011-2015," Supervisory Research and Analysis Working Papers RPA 18-3, Federal Reserve Bank of Boston.
    3. Raffaele Lenzi & Stefano Nobili & Filippo Perazzoli & Rosario Romeo, 2023. "Banks’ liquidity transformation rate: determinants and impact on lending," Temi di discussione (Economic working papers) 32, Bank of Italy, Economic Research and International Relations Area.
    4. Paolo Fegatelli, 2019. "Central bank digital currencies: The case of universal central bank reserves," BCL working papers 130, Central Bank of Luxembourg.
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    6. Cahn, Christophe & Duquerroy, Anne & Mullins, William, 2017. "Unconventional Monetary Policy and Bank Lending Relationships," SocArXiv vgk25, Center for Open Science.
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    More about this item

    Keywords

    collateral; loans; central bank; euro crisis.;
    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
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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