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The Interest of Being Eligible

Author

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  • J-S.Mésonnier
  • C. O’Donnell
  • O. Toutain

Abstract

Major central banks often accept pooled individual corporate loans as collateral in their refinancing operations with credit institutions. Such ``eligible'' loans to firms therefore provide a liquidity advantage to the banks that originate them. Banks may in turn pass on this advantage to the borrowers in the form of a reduced liquidity risk premium: the eligibility discount. We exploit a temporary surprise extension of the Eurosystem's universe of eligible collateral to mediumquality corporate loans, the Additional Credit Claims (ACC) program of February 2012, to assess the eligibility discount to corporate loans spreads in France. We find that becoming eligible to the Eurosystem's collateral framework translates into a reduction in rates by 7bp for new loans issued to ACC-firms, controlling for loan-, firm- and bank-level characteristics. In line with the opportunity-cost view of collateral choice, we also find evidence that this collateral channel of monetary policy is only active for banks which ex ante pledged more credit claims as part of their collateral with the Eurosystem.

Suggested Citation

  • J-S.Mésonnier & C. O’Donnell & O. Toutain, 2017. "The Interest of Being Eligible," Working papers 636, Banque de France.
  • Handle: RePEc:bfr:banfra:636
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    References listed on IDEAS

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    1. Kara, Alper & Marques-Ibanez, David & Ongena, Steven, 2016. "Securitization and lending standards: Evidence from the European wholesale loan market," Journal of Financial Stability, Elsevier, vol. 26(C), pages 107-127.
    2. Asim Ijaz Khwaja & Atif Mian, 2008. "Tracing the Impact of Bank Liquidity Shocks: Evidence from an Emerging Market," American Economic Review, American Economic Association, vol. 98(4), pages 1413-1442, September.
    3. Tamura, Kentaro & Tabakis, Evangelos, 2013. "The use of credit claims as collateral for Eurosystem credit operations," Occasional Paper Series 148, European Central Bank.
    4. Nyborg, Kjell G., 2017. "Central bank collateral frameworks," Journal of Banking & Finance, Elsevier, vol. 76(C), pages 198-214.
    5. Nadauld, Taylor D. & Weisbach, Michael S., 2012. "Did securitization affect the cost of corporate debt?," Journal of Financial Economics, Elsevier, vol. 105(2), pages 332-352.
    6. Elena Loutskina & Philip E. Strahan, 2009. "Securitization and the Declining Impact of Bank Finance on Loan Supply: Evidence from Mortgage Originations," Journal of Finance, American Finance Association, vol. 64(2), pages 861-889, April.
    7. Jean-Stéphane Mésonnier & Allen Monks, 2015. "Did the EBA Capital Exercise Cause a Credit Crunch in the Euro Area?," International Journal of Central Banking, International Journal of Central Banking, vol. 11(3), pages 75-117, June.
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    Cited by:

    1. C. Cahn & A. Duquerroy & W. Mullins, 2017. "Unconventional Monetary Policy and Bank Lending Relationships," Working papers 659, Banque de France.

    More about this item

    Keywords

    monetary policy; collateral framework; eligibility discount; Eurosystem.;

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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