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Monetary Policy, Illiquid Collateral and Bank Lending during the European Sovereign Debt Crisis

Author

Listed:
  • Jean Barthélémy

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, Centre de recherche de la Banque de France - Banque de France)

  • Vincent Bignon

    (Centre de recherche de la Banque de France - Banque de France, UPN - Université Paris Nanterre)

  • Benoît Nguyen

    (Centre de recherche de la Banque de France - Banque de France, UP1 - Université Paris 1 Panthéon-Sorbonne)

Abstract

This paper assesses the effect on banks' lending activity of accepting illiquid collateral at the central bank refinancing facility in times of wholesale funding stress. We exploit original data on the loans granted by the 177 largest euro area banks between 2011m1 and 2014m12 and on the composition of their pool of collateral pledged with the Eurosystem. During this period, two-thirds of the banks in our sample experienced a sizable loss of wholesale funding. Panel regression estimates show that the banks that pledged more illiquid collateral with the Eurosystem reduced their lending to non-financial firms and households less: a one standard deviation increase in the volume of illiquid collateral pledged corresponded to a 1.1% increase in loans to the economy. This result holds for banks that were and were not run. Our finding thus suggests that the broad range of collateral eligible in the euro area may have helped …

Suggested Citation

  • Jean Barthélémy & Vincent Bignon & Benoît Nguyen, 2017. "Monetary Policy, Illiquid Collateral and Bank Lending during the European Sovereign Debt Crisis," Sciences Po Economics Publications (main) hal-03945930, HAL.
    • Handle: RePEc:hal:spmain:hal-03945930
    DOI: 10.24187/ecostat.2017.494t.1921
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    Cited by:

    1. repec:osf:socarx:vgk25_v1 is not listed on IDEAS
    2. Paolo Fegatelli, 2019. "Central bank digital currencies: The case of universal central bank reserves," BCL working papers 130, Central Bank of Luxembourg.
    3. Jean Barthélemy & Vincent Bignon & Benoit Nguyen, 2018. "Monetary Policy and Collateral Constraints since the European Debt Crisis," Working papers 669, Banque de France.
    4. Jean‐Stéphane Mésonnier & Charles O'Donnell & Olivier Toutain, 2022. "The Interest of Being Eligible," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(2-3), pages 425-458, March.
    5. 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.
    6. Greppmair, Stefan & Paludkiewicz, Karol & Steffen, Sascha, 2025. "Collateral easing and safe asset scarcity: How money markets benefit from low-quality collateral," Discussion Papers 20/2025, Deutsche Bundesbank.
    7. Bank for International Settlements, 2019. "Unconventional monetary policy tools: a cross-country analysis," CGFS Papers, Bank for International Settlements, number 63.
    8. repec:bdi:wptemi:misp_032_23 is not listed on IDEAS
    9. Raffaele Lenzi & Stefano Nobili & Filippo Perazzoli & Rosario Romeo, 2023. "Banks’ liquidity transformation rate: determinants and impact on lending," Mercati, infrastrutture, sistemi di pagamento (Markets, Infrastructures, Payment Systems) 32, Bank of Italy, Directorate General for Markets and Payment System.

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