Asset encumbrance is a central concept in the context of banks’ liquidity crises, as it is associated with their capacity to obtain secured funding. This occasional paper summarises the work carried out by the task force on asset encumbrance, bringing together analyses by the ECB and those...

Central banks normally accept debt of their own governments as collateral in liquidity operations without reservations. This gives rise to a valuable liquidity premium that reduces the cost of government finance. The ECB is an interesting exception in this respect. It relies on external...

We study how the subjective beliefs about loan repayment on the side of liquidity-constrained banks affect the central bank's choice of collateral standards in its lending facilities. Optimism on the side of banks, entailing a higher collateral value of bank loans, can lead to excessive lending...

As Korea's household debt has increased rapidly since the mid-2000s, concerns that its economy's hard-wired leveraging may negatively impact economic activity have grown. Calls are being made for policy actions to return the economy to its long-run trend. Housing preferences and monetary shocks...

Micro, small, and medium-sized enterprises (MSMEs) play a significant role in the Indonesian economy, however most MSMEs have difficulties in accessing finance. The Credit Guarantee Scheme (CGS) is a popular program for guaranteeing bank lending to MSMEs by the government. The objective of this...

We model entrepreneurial finance using a combination of fiat money, traditional bank loans, and home equity loans. The banking sector is over-the-counter, where bargaining determines the pass-through from the nominal interest rate to the bank lending rate, characterizing the transmission channel...

Asset-based lending, the supply of loans based on floating collateral, is an important source of funding for small .rms. We analyze the effect of competition on asset-based loan markets on interest rate distributions and the mobility of small firms. Close monitoring of collateral by lenders...

We study a dynamic model of collateralized lending under adverse selection in which the quality of collateral assets is endogenously determined by hidden effort. Complementarities in incentives lead to non-ergodic dynamics: Asset quality and output grow when asset quality is high, but stagnate...

We study default and endogenous leverage in the laboratory. To this purpose, we develop a general equilibrium model of collateralized borrowing amenable to laboratory implementation and gather experimental data. In the model, leverage is endogenous: agents choose how much to borrow using a risky...

We argue that the planned transition toward alternative benchmark rates gives reason to mourn Libor. Guided by a model in which banks and non-banks can lend to each other, subject to realistic regulatory constraints, we show empirically that tighter financial regulation increases interbank...

This paper presents a simple and tractable equilibrium model of repos, where collateralized credit emerges under limited commitment. We show that even if there is no time variation in fundamentals, repo markets can fluctuate endogenously over time. In our theory, repo market fragilities are...

Central banks normally accept debt of their own governments as collateral in liquidity operations without reservations. This gives rise to a valuable liquidity premium that reduces the cost of government finance. The ECB is an interesting exception in this respect. It relies on external...

We study how the subjective beliefs about loan repayment on the side of liquidity-constrained banks affect the central bank's choice of collateral standards in its lending facilities. Optimism on the side of banks, entailing a higher collateral value of bank loans, can lead to excessive lending...

As Korea's household debt has increased rapidly since the mid-2000s, concerns that its economy's hard-wired leveraging may negatively impact economic activity have grown. Calls are being made for policy actions to return the economy to its long-run trend. Housing preferences and monetary shocks...

Green innovation is a key element in fighting climate change. But there are several challenges that need to be addressed in managing a green technology transition, both in terms of interacting market failures (environmental externality, public good nature of innovation, strategic behaviour of...

Central banks normally accept debt of their own governments as collateral in liquidity operations without reservations. This gives rise to a valuable liquidity premium that reduces the cost of government finance. The ECB is an interesting exception in this respect. It relies on external...

With an emphasis on contributing to macroeconomic pedagogy we examine the collateral multiplier by comparing it to the traditional money multiplier in a simplified framework of traditional banking and shadow banking in which government bonds are the core assets. While the money multiplier is a...

In this paper, the pricing performances of two learning networks, namely an artificial neural network and a bootstrap aggregating ensemble network, were compared when pricing the Johannesburg Stock Exchange (JSE) Top 40 European call options in a modern option pricing framework using a...

This paper examines credit market policies under pecuniary externalities induced by collateral constraints. Pigouvian taxes/subsidies on debt or savings are derived as Ramsey-optimal policies. Firstly, prudential (ex-ante) debt taxes can restore constrained efficiency. Secondly, when policies...

We study the macroeconomic effects of central bank digital currency (CBDC) in a dynamic general equilibrium model. Timing and information frictions create a need for inside (bank deposits) and outside money (CBDC) to finance production. To steer the quantity of CBDC, the central bank can set the...

We use a unique dataset of ratings for euro area corporate loans from commercial banks' internal rating-based (IRBs) systems and central banks' in-house credit assessment systems (ICASs) to investigate whether banks' IRB ratings underestimate the credit risk of their corporate loan portfolios...

Central banks normally accept debt of their own governments as collateral in liquidity operations without reservations. This gives rise to a valuable liquidity premium that reduces the cost of government finance. The ECB is an interesting exception in this respect. It relies on external...

What are the effects of different borrower-based macroprudential tools when both real and nominal interest rates are low? We study this question in a New Keynesian model featuring long-term debt, housing transaction costs and a zero lower bound constraint on policy rates. We find that the...

In this paper, the pricing performances of two learning networks, namely an artificial neural network and a bootstrap aggregating ensemble network, were compared when pricing the Johannesburg Stock Exchange (JSE) Top 40 European call options in a modern option pricing framework using a...

This paper shows that rising real estate prices reduce industry productivity, because they lead to a reallocation of capital and labor towards inefficient firms. I establish that the rise in real estate value during the US housing boom relaxes firms' financial constraints. Companies borrow...

We show that lenders join a U.S. commercial credit bureau when information asymmetries between incumbents and entrants create an adverse selection problem that hinders market entry. Lenders also delay joining when information asymmetries protect them from competition in existing markets,...

In this paper we propose a SVAR identification strategy to disentangle two housing demand shocks and their ensuing effect on consumption. This builds on the literature studying the role of the collateral and housing wealth effects on household behaviour. A mix of zero and sign restrictions...

Collateral-based monetary policy tools have been used extensively by major central banks. Lack of proper policy counterfactuals, however, makes it difficult to empirically identify their causal effects on the financial market and the real economy. We exploit a quasi-natural experiment in China,...