Central bank collateral policy and credit pricing: Evidence from Finland

Aleksi Paavola and Ville Voutilainen

No 7/2024, Bank of Finland Research Discussion Papers from Bank of Finland

Abstract: We study the effect of collateral eligibility of corporate loans on the pricing of these loans by banks in Finland. Speciftcally, we investigate whether loans that are pledgeable as collateral for central bank borrowing have lower liquidity premia and thus lower interest rates. For identiftcation, we utilize two unanticipated changes in the collateral framework of the Bank of Finland after the COVID-19 pandemic in 2020 and loanlevel corporate credit data from the Finnish implementation of Anacredit. Our main result is that we do not ftnd evidence that collateral pool expansions by the central bank signiftcantly affected interest rates paid by borrowers. The result contrasts with recent ftndings that imply signiftcant effects of similar collateral pool expansions on credit supply. We hypothesize that differences in the institutional setting and economic environment between countries may explain the contradictory results. Our ftndings show that collateral policies may not have similar effects on credit pricing in all circumstances.

Keywords: monetary policy; collateral framework; credit pricing; interest rates; eligibility (search for similar items in EconPapers)
JEL-codes: E43 E52 G21 G28 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-ban, nep-cba, nep-inv and nep-mon
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