Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/297373 
Year of Publication: 
2024
Series/Report no.: 
ECB Working Paper No. 2933
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
Banks in the euro area can generate high-quality liquid assets (HQLA) by borrowing central bank reserves from the Eurosystem against non-HQLA collateral. This paper quantifies the extent of this liquidity transformation and finds that on average EUR 0.92 of net HQLA are generated for each euro of credit provided by the Eurosystem. The paper then identifies intentional liquidity transformation using two novel approaches: The first approach compares the liquidity profile of already pledged vs new collateral, and the second approach compares the liquidity profile of the pool of pledged securities with banks' total eligible securities holdings. Both approaches show that banks use their least liquid assets as collateral first and pledge more liquid assets only at the margin. This intentional liquidity transformation is sizable and accounts for 30-60% of generated HQLA. These results are relevant for calibrating the collateral framework as well as the optimal size and composition of the Eurosystem balance sheet.
Subjects: 
Liquidity transformation
collateral framework
central bank operational framework
Liquidity Coverage Ratio
reserve demand
JEL: 
C23
E52
E58
G28
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-6681-8
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.