Download This PaperSafe Asset Shortages: Evidence from the European Government Bond Lending Market
Georgetown McDonough School of Business Research Paper No. 2692251
Journal of Financial and Quantitative Analysis
53 Pages Posted: 19 Nov 2015 Last revised: 2 Oct 2020
Date Written: January 8, 2020
Abstract
We identify the unique role of the government bond lending market in collateral transformation during periods of market stress. Using a novel database, we provide evidence that safe assets in the lending market have higher demand, higher borrowing cost, and higher usage of non-cash collateral relative to non-safe assets during stressed market conditions. Moreover, we find that market participants are able to obtain safe assets using relatively low-quality non-cash collateral, allowing for collateral transformation. We show that policy interventions by central banks can help reduce safe asset shortages by returning sought-after safe assets to the market.
Keywords: safe asset, securities lending, velocity, European government bonds, collateral
JEL Classification: E44, E58, G24
Suggested Citation: Suggested Citation
Reena Aggarwal
Georgetown University - Robert Emmett McDonough School of Business ( email )
3700 O Street, NW
Washington, DC 20057
United States
202-687-3784 (Phone)
202-687-0798 (Fax)
HOME PAGE: http://https://gufaculty360.georgetown.edu/s/contact/00336000014RhE9AAK/reena-aggarwal
European Corporate Governance Institute (ECGI) ( email )
c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium
Jennie Bai (Contact Author)
Georgetown University - McDonough School of Business ( email )
3700 O Street, NW
Washington, DC 20057
United States
HOME PAGE: http://www.jenniebai.com
