Collateral Scarcity and Market Functioning: Insights From the Eurosystem Securities Lending Facilities

51 Pages Posted: 13 Jul 2022 Last revised: 27 Jul 2023

Multiple version iconThere are 2 versions of this paper

Date Written: June 29, 2022

Abstract

We utilize the Eurosystem securities lending facilities as a laboratory to investigate the impact of collateral scarcity on market functioning. The reduction of securities lending fees, implemented in November 2020, provides a natural experiment for our analyses. This policy change results in a surge in the utilization of securities lending facilities, particularly for bonds with limited supply elasticity in the repo market. We find no evidence of substitution effects; instead, the overall activity in the repo market expands through the collateral multiplier. The improved pricing conditions alleviate collateral scarcity and enhance market quality in both the repo and cash markets.

Keywords: safe assets, collateral scarcity, monetary policy, quantitative easing, securities lending facilities, repo, market functioning

JEL Classification: G10, G21, E50, E58

Suggested Citation

Greppmair, Stefan and Jank, Stephan, Collateral Scarcity and Market Functioning: Insights From the Eurosystem Securities Lending Facilities (June 29, 2022). Available at SSRN: https://ssrn.com/abstract=4149660 or http://dx.doi.org/10.2139/ssrn.4149660

Stefan Greppmair (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Stephan Jank

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

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

Paper statistics

Downloads
141
Abstract Views
946
Rank
353,390
PlumX Metrics