Journal of Financial Market Infrastructures

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Mobilization of collateral in Germany as a reflection of monetary policy and financial market developments

Alexander Müller, Jan Paulick, Jan Fichtner and Hubert Wittenmayer

  • This paper analyzes the development of posted collateral.
  • The development reflects changes in financial markets and monetary policy.
  • There is a shift in submission channels for collateral due to potential "home bias" and portfolio reallocations.

ABSTRACT

Participation in Eurosystem credit operations requires that credit institutions post collateral. Therefore, the development of deposited collateral reflects changes in financial markets and monetary policy. This paper describes and analyzes - for the period February 2008 to March 2016 - developments in the market value of marketable assets submitted as collateral in Germany and the Eurosystem against the backdrop of the financial market crisis. The development is characterized by an initial strong increase at the onset of the crisis and a decrease after 2010 because of lower funding requirements. The posted collateral followed the course of the funding requirements, which initially rose sharply in the wake of the financial crisis. Due to high liquidity inflows, which were reflected in the increasing TARGET2 claims of the Bundesbank, the refinancing needs and posted collateral decreased after 2010. However, the posted collateral relative to refinancing operations remained remarkably high. Credit institutions can use different submission channels for collateral.We identify significant shifts among these channels. While these shifts are partly due to more technical aspects, they may also stem from a "home bias" and portfolio reallocations.

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