Collateral Eligibility of Corporate Debt in the Eurosystem

64 Pages Posted: 27 Apr 2020 Last revised: 5 May 2020

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

Max Riedel

Leibniz Institute for Financial Research SAFE

Zorka Simon

Goethe University Frankfurt - Research Center SAFE; Netspar

Marti G. Subrahmanyam

New York University (NYU) - Department of Finance

Date Written: April 1, 2020

Abstract

We study how the Eurosystem Collateral Framework for corporate bonds helps the European Central Bank (ECB) fulfill its policy mandate. Using the ECBs eligibility list, we identify the first inclusion date of both bonds and issuers. We find that due to the increased supply and demand for pledgeable collateral following eligibility, (i) securities lending market trading activity increases, (ii) eligible bonds have lower yields, and (iii) the liquidity of newly-issued bonds declines, whereas the liquidity of older bonds is unaffected/improves. Corporate bond lending relaxes the constraint of limited collateral supply, thereby making the market more cohesive and complete. Following eligibility, bond-issuing firms reduce bank debt and expand corporate bond issuance, thus increasing overall debt size and extending maturity.

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

JEL Classification: G12, G14, G32, E58

Suggested Citation

Pelizzon, Loriana and Riedel, Max and Simon, Zorka and Subrahmanyam, Marti G., Collateral Eligibility of Corporate Debt in the Eurosystem (April 1, 2020). SAFE Working Paper No. 275, 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

Leibniz Institute for Financial Research SAFE ( email )

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

HOME PAGE: http://www.safe-frankfurt.de

Ca Foscari University of Venice ( email )

Dorsoduro 3246
Venice, Veneto 30123
Italy

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)

Goethe University Frankfurt - Research Center SAFE ( email )

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

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Marti G. Subrahmanyam

New York University (NYU) - Department of Finance ( email )

Stern School of Business,
44 West 4th Street, Suite 9-68
New York, NY 10012-1126
United States
212-998-0348 (Phone)
212-995-4233 (Fax)

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