Monetary Policy, Illiquid Collateral and Bank Lending during the European Sovereign Debt Crisis

Jean Barthélemy, Vincent Bignon and Benoît Nguyen
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Benoît Nguyen: Centre de recherche de la Banque de France - Banque de France, UP1 - Université Paris 1 Panthéon-Sorbonne

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Abstract: This paper assesses the effect on banks' lending activity of accepting illiquid collateral at the central bank refinancing facility in times of wholesale funding stress. We exploit original data on the loans granted by the 177 largest euro area banks between 2011m1 and 2014m12 and on the composition of their pool of collateral pledged with the Eurosystem. During this period, two-thirds of the banks in our sample experienced a sizable loss of wholesale funding. Panel regression estimates show that the banks that pledged more illiquid collateral with the Eurosystem reduced their lending to non-financial firms and households less: a one standard deviation increase in the volume of illiquid collateral pledged corresponded to a 1.1% increase in loans to the economy. This result holds for banks that were and were not run. Our finding thus suggests that the broad range of collateral eligible in the euro area may have helped …

Keywords: Collateral; Loans; Central bank; Euro crisis (search for similar items in EconPapers)
Date: 2017-10-11
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Published in Economie et Statistique / Economics and Statistics, 2017, 494-495-496, pp.111-130. ⟨10.24187/ecostat.2017.494t.1921⟩

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Related works:
Journal Article: Monetary policy, illiquid collateral and bank lending during the European sovereign debt crisis (2017)
Working Paper: Monetary Policy, Illiquid Collateral and Bank Lending during the European Sovereign Debt Crisis (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03945930

DOI: 10.24187/ecostat.2017.494t.1921

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