Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/261179 
Year of Publication: 
2022
Series/Report no.: 
ECB Working Paper No. 2645
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
We show that the liquidation value of collateral depends on who is pledging it. We employ transaction-level data on overnight repurchase agreements (repo) and loan-level credit registry data on corporate loans. We find that borrowers on the repo market pay a 2.6 basis points rate premium when their default risk is positively correlated with the risk of the collateral that they pledge. The premium in corporate loan markets amounts to 25 basis points. Our results imply that liquidation value contains a component at the borrower-collateral level, and that lenders monitor and price-in the interdependency between borrower and collateral risk.
Subjects: 
Collateral
Money markets
Corporate loans
Wrong-way risk
LGD
JEL: 
G21
G12
D53
D47
E43
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-4978-1
Document Type: 
Working Paper

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