Quantifying the Eligibility Premium: Analysis of an ECB Collateral Policy
SeriesResearch Master Defense
LocationVU Amsterdam Main building (HG) 6A-28
Date and time
October 23, 2019
09:00 - 10:00
The eligibility premium affects the value of securities that can be used as collateral in the central bank's lending operations. Being included in the collateral list of a central bank influences a security's price positively and therefore reduces the borrowing costs of issuing such a bond. This ultimately affects the choice of capital structure of the company that issues bonds, which can be pledged as collateral in the open market operations of the central bank.
I apply a difference-in-differences framework to a change in the collateral policy by the ECB to quantify the eligibility effect. This policy exogenously added a set of securities to the collateral list. Focusing on corporate bonds I finds that a bond's borrowing costs went down once it was included in the collateral pool. Additionally, companies that issued eligible bonds increased their leverage.