Real Effects of Financial Market Integration: Evidence from an ECB Collateral Framework Change

Pia Hüttl () and Matthias Kaldorf
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Pia Hüttl: Humboldt University Berlin, DIW Berlin

No 174, ECONtribute Discussion Papers Series from University of Bonn and University of Cologne, Germany

Abstract: This paper studies the effects of harmonizing collateral policy in a monetary union. In 2007, the European Central Bank replaced national collateral lists with a single list specifying which assets euro area banks can pledge as collateral. Banks holding newly eligible assets experience a reduction in their cost of funding and increase loan supply compared to banks without such assets. The effect is driven by core banks increasing credit supply to riskier and less productive firms located in periphery countries. These firms in turn experience growth in employment and investment. Our results suggest that a harmonized collateral framework facilitates cross-border lending to borrowing-constrained firms and, thereby, increases financial market integration in a monetary union.

Keywords: Collateral Policy; Bank Lending Channel; Financial Integration; Banking Union; Real Effects (search for similar items in EconPapers)
JEL-codes: E44 E52 E58 G20 G21 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2022-06
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eec, nep-fdg and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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https://www.econtribute.de/RePEc/ajk/ajkdps/ECONtribute_174_2022.pdf First version, 2022 (application/pdf)

Related works:
Working Paper: Real Effects of Financial Market Integration: Evidence from an ECB Collateral Framework Change (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:ajk:ajkdps:174

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