Liquidation value and loan pricing

Arbeitspapier

We show that the liquidation value of collateral depends on who is pledging it. We employ transaction-level data on overnight repurchase agreements (repo) and loan-level credit registry data on corporate loans. We find that borrowers on the repo market pay a 2.6 basis points rate premium when their default risk is positively correlated with the risk of the collateral that they pledge. The premium in corporate loan markets amounts to 25 basis points. Our results imply that liquidation value contains a component at the borrower-collateral level, and that lenders monitor and price-in the interdependency between borrower and collateral risk.

Object Details

• ISBN: 978-92-899-4978-1
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 2645

Classification and Topics

• Classification: Wirtschaft ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Asset Pricing; Trading Volume; Bond Interest Rates ; General Equilibrium and Disequilibrium: Financial Markets ; Market Design ; Interest Rates: Determination, Term Structure, and Effects
• Subject: Collateral ; Money markets ; Corporate loans ; Wrong-way risk ; LGD

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Barbiero, Francesca ; Schepens, Glenn ; Sigaux, Jean-David
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2022

Further information

• DOI: doi:10.2866/173797
• Handle: http://hdl.handle.net/10419/261179
• Last update: 10.03.2025, 11:43 AM CET