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Contribution Details
| Type | Working Paper |
| Scope | Discipline-based scholarship |
| Title | The effect of the ECB's collateral framework on covered bond issuance |
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| Institution | University of Zurich |
| Series Name | - |
| Number | - |
| Abstract Text | This study contributes to the current debate on central bank collateral frameworks. It relates to the idea that central bank collateral policies affect the types of securities being issued (Nyborg, 2016). It examines bond issuance patterns around downgrades of bank credit ratings to below a threshold uniquely important in the ECB's collateral eligibility rules. 58 out of 124 European banks lost their A- senior unsecured rating during the sample period 2007-2017. Banks fund an additional 3 % of total assets with covered bonds within the three years after the threshold downgrade (60 % of the unconditional mean). Market placed covered bond funding is mostly determined by bank ratings and bank business model, retained covered bond funding by the financial health of a bank. This article discusses the results in the context of the corporate finance literature, theories of asset encumbrance as well as the systemic implications. |
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