in modern monetary and financial systems, namely central bank collateral frameworks. Their importance can be understood …, not defined in a market, but by the collateral frameworks and interest rate policies of central banks. Using the … collateral framework of the Eurosystem as a basis of illustration and case study, the paper brings to light the functioning …

studying an extensive dataset of banks' liquidity uptake and pledged collateral in central bank repos. We document systemic … arbitrage whereby banks funnel credit risk and low-quality collateral to the central bank. Weaker banks use lower quality … collateral to demand disproportionately larger amounts of central bank money (liquidity). This holds both before and after the …

Should central banks lend against low quality collateral? We characterize efficient central bank collateral policy in a … model where a bank borrows from the interbank market or the central bank. Collateral has favorable incentive effects but is … costly to transfer to lenders who value the collateral less because of imperfect collateral quality. We show that a fall in …