Discussion paper 20/2025: Stefan Greppmair, Karol Paludkiewicz, Sascha Steffen
If a broader range of collateral is permitted for funding via central bank lending, this gives banks an incentive to choose previously ineligible, lower-rated assets as collateral instead of government bonds. Banks could then more easily use government bonds as collateral in the private sector repo market and thus help to alleviate asset scarcity there. This hypothesis is investigated in a new study.
The article is available here.