Review of Finance 2026
Collateral scarcity and market functioning: insights from the Eurosystem securities lending facilities
Abstract
We utilize the Eurosystem securities lending facilities as a laboratory to investigate the impact of collateral scarcity on market functioning. The reduction of securities lending fees, implemented in November 2020, provides a quasi-natural experiment for our analyses. This policy change results in a surge in the utilization of securities lending facilities, particularly for bonds with limited supply elasticity in the repo market. We find no evidence of substitution effects; instead, the overall activity in the repo market expands through the collateral multiplier. The improved pricing conditions alleviate collateral scarcity and enhance market quality in both the repo and cash markets.
- DOI
- 10.1093/rof/rfag004
- Language
- en
- Sources
- crossref