Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/246127 
Year of Publication: 
2021
Series/Report no.: 
Working Paper No. 6/2021
Publisher: 
Norges Bank, Oslo
Abstract: 
We use administrative and supervisory data at the bank and loan level to investigate the impact of the introduction of covered bonds on the composition of bank balance sheets and bank risk. Covered bonds, despite being collateralized by mortgages, lead to a shift in bank lending from mortgages to corporate loans. Young and low-rated firms in particular receive more credit, suggesting that overall credit risk increases. At the same time, we find that total balance sheet liquidity increases. We identify the channel in a theoretical model and provide empirical evidence: Banks with low initial liquidity and banks with sufficiently high risk-adjusted return on firm lending drive the results.
Subjects: 
Asset encumbrance
Covered bond
Portfolio rebalancing
Liquidity management
JEL: 
G21
G23
G28
Persistent Identifier of the first edition: 
ISBN: 
978-82-8379-201-0
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper
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