The transmission of bank liquidity shocks: Evidence from the Eurosystem collateral framework

Pia Hüttl and Matthias Kaldorf

No 04/2024, Discussion Papers from Deutsche Bundesbank

Abstract: How does a shock to the liquidity of bank assets affect credit supply, cross-border lending, and real activity at the firm level? We exploit that, in 2007, the European Central Bank replaced national collateral frameworks by a single list. This collateral framework shock added loans to non-domestic euro area firms to the pool of eligible assets. Using loan level data, we show that banks holding a large share of newly eligible cross-border loans increase loan supply by 14% and reduce spreads by 16 basis points, compared to banks with smaller holdings of such loans. The additional credit is mainly extended to (previously eligible) domestic borrowers, suggesting only a limited cross-border effect of the collateral framework shock. However, the shock had real effects: firms highly exposed to affected banks increase their total debt, employment, and investment.

Keywords: Bank Liquidity Shocks; Bank Lending Channel; Financial Integration; Real Effects; Eligibility Premia (search for similar items in EconPapers)
JEL-codes: E44 E58 G21 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eec, nep-ifn, nep-mac and nep-mon
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:283006

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