Unsecured and Secured Funding
19 Pages Posted: 14 Aug 2016 Last revised: 4 Mar 2021
Date Written: December 10, 2020
The appendices for this paper may be found here: https://ssrn.com/abstract=3746406.
We study how individual banks borrow and lend in the euro unsecured and secured interbank market. We find that banks with lower credit worthiness replace unsecured with secured borrowing, which is consistent with a reduction in the supply of unsecured loans rather than a lower demand for funding. Riskier lenders replace unsecured with secured lending, suggesting that banks take precautionary measures and prefer to lend against safe collateral. Our results highlight the importance of a joint analysis of unsecured and secured funding. Separate analyses only give a partial view and might yield misleading conclusions when banks access both funding sources.
Keywords: Interbank market, funding risk, unsecured funding, repurchase agreements, counterparty credit risk
JEL Classification: E42, E43, E58, G01, G21, G28
Suggested Citation: Suggested Citation