Collateral Eligibility of Corporate Debt in the Eurosystem

Pelizzon, Loriana; Riedel, Max; Simon, Zorka; Subrahmanyam, Marti G.

doi:10.2139/ssrn.3586409

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Collateral Eligibility of Corporate Debt in the Eurosystem

SAFE Working Paper No. 275

NYU Stern School of Business

118 Pages Posted: 27 Apr 2020 Last revised: 22 Dec 2023

See all articles by Loriana Pelizzon

Loriana Pelizzon

Goethe University Frankfurt - Faculty of Economics and Business Administration; Leibniz Institute for Financial Research SAFE; Ca Foscari University of Venice - Dipartimento di Economia

Max Riedel

Leibniz Institute for Financial Research SAFE

Zorka Simon

Leibniz Institute for Financial Research SAFE

Marti G. Subrahmanyam

New York University (NYU) - Leonard N. Stern School of Business; NYU Shanghai

Date Written: December 19, 2023

Abstract

We study the many implications of the Eurosystem collateral framework for corporate bonds. Using data on the evolving collateral eligibility list, we identify the first inclusion dates of bonds and issuers and use these events to find that the increased supply and demand for pledgeable collateral following eligibility (a) increases activity in the corporate securities lending market, (b) lowers eligible bond yields, and (c) affects bond liquidity. Thus, corporate bond lending relaxes the constraint of limited collateral supply and thereby improves market functioning.

Keywords: Collateral policy, European Central Bank (ECB), Corporate bonds, Eligibility premium

JEL Classification: G12, G18, G28, E58

Suggested Citation: Suggested Citation

Pelizzon, Loriana and Riedel, Max and Simon, Zorka and Subrahmanyam, Marti G., Collateral Eligibility of Corporate Debt in the Eurosystem (December 19, 2023). SAFE Working Paper No. 275, NYU Stern School of Business, Available at SSRN: https://ssrn.com/abstract=3586409 or http://dx.doi.org/10.2139/ssrn.3586409