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Monetary Policy and Collateral Constraints since the European Debt Crisis

Jean Barthélemy (), Vincent Bignon () and B. Nguyen

Working papers from Banque de France

Abstract: With the European debt crisis, the role of assets accepted by the Eurosystem as collateral for refinancing operations took on a new place in the public debate, as, against a backdrop of shifting demand for refinancing, movements in European bond prices led to significant fluctuations in the collateral constraints of credit institutions. This paper documents the change in and heterogeneity of these constraints. We assess the impact attributable to the downgrade of sovereign ratings and the decline in asset prices during the European debt crisis on the valuation of collateral available for refinancing. We also construct indicators that track the change in the quality and liquidity of posted collateral. Our findings suggest that the flexibility of the Eurosystem collateral framework enabled credit institutions to cushion the shock created by the European debt crisis by depositing assets that were less liquid than bonds without causing a relative deterioration in the average rating of assets posted as collateral compared with the average rating on the market, as measured by eligible marketable assets.

Keywords: Collateral; Eurosystem; Transmission of monetary policy; European debt crisis. (search for similar items in EconPapers)
JEL-codes: E52 E58 G10 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec, nep-mac and nep-mon
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:669

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