Safe-Asset Shortages: Evidence from the European Government Bond Lending Market
| Autor: | Jennie Bai, Reena Aggarwal, Luc Laeven |
|---|---|
| Rok vydání: | 2020 |
| Předmět: |
Economics and Econometrics
050208 finance Collateral Bond media_common.quotation_subject 05 social sciences Financial system Market liquidity Scarcity Accounting Cash 0502 economics and business Government bond Business Asset (economics) Securities lending 050207 economics health care economics and organizations Finance media_common |
| Zdroj: | Journal of Financial and Quantitative Analysis. 56:2689-2719 |
| ISSN: | 1756-6916 0022-1090 |
| DOI: | 10.1017/s0022109020000770 |
| Popis: | The securities lending market for government bonds is an active short-term funding market which not only facilitates repo and cash markets, but also plays a unique role in transforming collateral from low-quality into high-quality liquid assets. We provide strong evidence of an increase in scarcity of safe assets and document the role of the securities lending market in collateral upgrading. During periods of market stress, lending fee increases significantly more for higher quality bonds, consistent with a flight-to-quality effect. In addition, borrowers increase the use of low-quality noncash collateral to upgrade to high-quality securities. Furthermore, there is increased usage of such borrowed securities to obtain cash in the repo market. This evidence is consistent with collateral upgrading in the lending market to obtain cash in the repo market. Finally, we show that central bank purchases of low-quality bonds mitigated disruptions in short-term funding markets by reducing fees of these lower quality bonds. |
| Databáze: | OpenAIRE |
| Externí odkaz: |
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