Transaction cost shocks in financial markets are known to affect asset prices that banks use to collateralize borrowings in monetary policy operations.
The ECB published an interesting paper presenting a micro-simulation of the impact by transaction cost shocks on asset prices. The conclusion is that banks will on average suffer small collateral losses while selected institutions may face considerably larger collateral decreases.
The simulation shows that, when disregarding effects on turnover, a 0.1 percentage point increase in transactions cost causes a decrease of -0.30% in collateral value. When taking the effects on the turnover of debt instruments into account in the order of 25% or 75% the collateral value is shown to decrease by -0.22% and -0.07% respectively.
The study also shows that different assets are impacted differently. Uncovered bank bonds, central government assets and corporate bonds are affected the most with decreases by -0.96%, -0.91% and -0.34% respectively.