The Interest of Being Eligible

Jean-Stéphane Mésonnier, Charles O'Donnell and Olivier Toutain
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Charles O'Donnell: Centre de recherche de la Banque Centrale européenne - Banque Centrale Européenne

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Abstract: Major central banks accept nonmarketable assets, such as pooled individual corporate loans, as collateral in their refinancing operations with banks. Such "eligible" loans to firms may provide a liquidity service to the banks which originate them. Banks may in turn pass on a part of this benefit to their borrowers in the form of a reduced interest rate: the eligibility discount. We exploit a surprise extension of the Eurosystem's set of eligible collateral to medium-quality corporate loans, the Additional Credit Claims (ACC) program of February 2012, to assess the eligibility discount to corporate loans spreads in France. We find that becoming eligible to the Eurosystem's collateral framework translates into a relative reduction in rates by 8 bps for new loans issued to ACC-eligible firms , controlling for loan-, firm-, and bank-level characteristics. We find that this collateral channel of monetary policy is only active for the banks which have a lower opportunity cost in pledging credit claims and which are well-capitalized.

Keywords: monetary policy; collateral frameworks; eligibility discount; eurosystem (search for similar items in EconPapers)
Date: 2022-03
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Citations: View citations in EconPapers (5)

Published in Journal of Money, Credit and Banking, 2022, 54 (2-3), pp.425-458. ⟨10.1111/jmcb.12851⟩

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Journal Article: The Interest of Being Eligible (2022)
Working Paper: The Interest of Being Eligible (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03590200

DOI: 10.1111/jmcb.12851

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