Mobilization of collateral in Germany as a reflection of monetary policy and financial market developments

Alexander Müller, Jan Paulick, Jan Fichtner and Hubert Wittenmayer

Journal of Financial Market Infrastructures

Abstract: ABSTRACT Participation in Eurosystem credit operations requires that credit institutions post collateral.;Therefore, the development of deposited collateral reflects changes in financial;markets and monetary policy. This paper describes and analyzes - for the period;February 2008 to March 2016 - developments in the market value of marketable;assets submitted as collateral in Germany and the Eurosystem against the backdrop;of the financial market crisis. The development is characterized by an initial strong;increase at the onset of the crisis and a decrease after 2010 because of lower funding;requirements. The posted collateral followed the course of the funding requirements,;which initially rose sharply in the wake of the financial crisis. Due to high liquidity;inflows, which were reflected in the increasing TARGET2 claims of the Bundesbank,;the refinancing needs and posted collateral decreased after 2010. However, the;posted collateral relative to refinancing operations remained remarkably high. Credit institutions can use different submission channels for collateral.We identify significant;shifts among these channels. While these shifts are partly due to more technical;aspects, they may also stem from a "home bias" and portfolio reallocations.

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