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

Pia Hüttl and Matthias Kaldorf

No 2012, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: Does central bank collateral policy contribute to financial market integration? We address this question by exploiting that, in 2007, the European Central Bank replaced national collateral frameworks by a single list. Under the single list regime, euro area banks could pledge all euro area bank loans as collateral, not only domestic loans as before the framework change. Banks holding a large share of newly eligible cross-border bank loans increase loan supply compared to banks with smaller holdings to such loans. The additional credit supply is predominately targeted at previously eligible domestic borrowers, suggesting only a small effect on financial integration. However, we find evidence that firms which are highly exposed to affected banks experience a relaxation of borrowing constraints and increase their real activity. The effects of harmonized collateral policy, thus, closely resemble the effects of expansionary credit policy, while it was less successful in stimulating direct cross-border lending.

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: 52 p.
Date: 2022
New Economics Papers: this item is included in nep-eec and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Real Effects of Financial Market Integration: Evidence from an ECB Collateral Framework Change (2022)
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