Emanuel Mönch (Deutsche Bundesbank, Goethe University Frankfurt and CEPR) - Safe asset shortage and collateral reuse

Co-authors: Stephan Jank (Deutsche Bundesbank) and Michael Schneider (Deutsche Bundesbank)

The reuse of collateral can support the efficient allocation of assets in the financial system. Exploiting a novel dataset, we quantify banks' collateral reuse at the security level. We show that banks substantially increase their reuse of collateral in response to scarcity induced by central bank asset purchases. Repo rates are less sensitive to purchase-induced scarcity at low levels of reuse, when the banking system can easily supply collateral through reuse. Repo rates are more sensitive to scarcity and more volatile at high levels of reuse, highlighting the trade-off between the shock absorption and shock amplification effects of collateral reuse.

Online Research seminars organized by the Bank of Finland's Research Unit are open to all researchers interested in the subjects covered. Those wishing to attend a seminar are kindly asked to register in advance, by filling in the Online Registration Form

 The registration for each seminar is open until 9:00 am the day of the seminar. You will receive a link to join the seminar by email at the latest one hour before the seminar is scheduled to begin.