The Interest of Being Eligible

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.