This paper studies the effects of making corporate sector assets eligible as collateral for central bank borrowing …. Banks are willing to pay collateral premia on assets if they become eligible as collateral. Collateral premia make debt … collateral supply, firm responses also have a negative effect: higher debt issuance makes corporate bonds riskier in future …

We develop a unified valuation theory that incorporates credit risk (defaults), collateralization and funding costs, by …