Collateralization and Financial Stability

Vilma Dingová, Václav Hausenblas and Zlatuse Komarkova ()

Chapter Thematic Article 3 in CNB Financial Stability Report 2013/2014, 2014, pp 137-147 from Czech National Bank, Research and Statistics Department

Abstract: From a general perspective, collateralisation of exposures is a key tool for mitigating the idiosyncratic risks of financial institutions. If, however, the use of collateral in the financial system exceeds a certain threshold it can pose a risk to financial stability. Collateral use is procyclical. Heavy collateral use creates a network of direct and indirect linkages in the financial system, making it more vulnerable to contagion. It also fosters general growth in asset encumbrance in borrowers’ balance sheets. This article looks at collateral use, asset encumbrance and related sources of systemic risk and maps out this phenomenon in the Czech financial system.

Date: 2014
ISBN: 978-80-87225-53-0
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Citations: View citations in EconPapers (2)

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