Collateral Eligibility of Corporate Debt in the Eurosystem

101 Pages Posted: 27 Apr 2020 Last revised: 12 Nov 2020

See all articles by Loriana Pelizzon

Loriana Pelizzon

Goethe University Frankfurt - Faculty of Economics and Business Administration

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

Date Written: November 11, 2020

Abstract

We study the plethora of implications of the Eurosystem collateral framework for corporate bonds. Using data on the evolving collateral eligibility list, we identify the first inclusion date of bonds and issuers. We find that increased supply and demand for pledgeable collateral following eligibility (a) increases activity in the securities lending market, (b) lowers eligible bonds yields, and (c) reduces the liquidity of newly issued bonds, whereas that of older bonds remains unaffected. Thus, corporate bond lending relaxes the constraint of limited collateral supply, thereby improving market cohesion and completeness.

Keywords: Collateral Policy, ECB, Corporate Bonds, Eligibility premium

JEL Classification: G12, G18, G28, E58

Suggested Citation

Pelizzon, Loriana and Riedel, Max and Simon, Zorka and Subrahmanyam, Marti G., Collateral Eligibility of Corporate Debt in the Eurosystem (November 11, 2020). 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

Loriana Pelizzon

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, D-60323
Germany

Max Riedel

Leibniz Institute for Financial Research SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Zorka Simon (Contact Author)

Leibniz Institute for Financial Research SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Marti G. Subrahmanyam

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

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
274
Abstract Views
1,659
rank
156,292
PlumX Metrics