Collateral Eligibility of Corporate Debt in the Eurosystem

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

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

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 - Dipartimento di Economia ( email )

Cannaregio 873
Venice, 30121
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)

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

NYU Shanghai ( email )

1555 Century Ave
Shanghai, 200122
China

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