Belgian paper examines use of illiquid loans as collateral
Liquidity and funding purposes both inform banks’ decisions, researchers say
A working paper published by the National Bank of Belgium explores the use by European banks of illiquid loans as collateral.
In Using bank loans as collateral in Europe: The role of liquidity and funding purposes, François Koulischer and Patrick Van Roy say that around 30% of loans made by banks in the euro area are used as collateral. Approximately two thirds are used for funding purposes, they write.
Banks use illiquid loans as collateral to “manage short-term liquidity shocks”, and to fund
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