Aggregate Risk and Lending Decisions in the Interbank Market

38 Pages Posted: 27 Feb 2019 Last revised: 19 Mar 2024

See all articles by Anuar Bechara Bitar

Anuar Bechara Bitar

Bank of Mexico

Alejandro Bernales

Universidad de Chile

Carlos Cañón

Banco de México

Nicolás Garrido

University of Chile

Date Written: March 11, 2024

Abstract

We introduce a novel measure of the market-wide risk of the interbank market: the total (across all banks) uncollateralized/collateralized lending volume ratio: MwideRiskInterB. This measure is based on the intuition that lender banks should use less (more) uncollateralized (collateralized) lending when aggregate risk increases, after controlling for banks’ features and market conditions that might affect MwideRiskInterB (e.g. banks’ credit risk, cross-border inflows, supply-demand heterogeneity, and funding costs, amongst others). This is because collateralized loans are safer than uncollateralized ones after an interbank market-wide-collapse. Actually, we show that MwideRiskInterB modifies the future lending decisions and net lending holdings of individual banks.

Keywords: Aggregate risk, interbank market, lending decisions, collateralized lending, uncollateralized lending.

JEL Classification: E42, E51, G01, G21, G28.

Suggested Citation

Bechara Bitar, Anuar and Bernales, Alejandro and Cañón, Carlos and Garrido, Nicolás, Aggregate Risk and Lending Decisions in the Interbank Market (March 11, 2024). Available at SSRN: https://ssrn.com/abstract=3336249 or http://dx.doi.org/10.2139/ssrn.3336249

Anuar Bechara Bitar

Bank of Mexico ( email )

Alejandro Bernales (Contact Author)

Universidad de Chile ( email )

Diagonal Paraguay 257
Santiago
Chile

HOME PAGE: http://www.alejandrobernales.com

Carlos Cañón

Banco de México ( email )

Av. 5 de Mayo No. 6
Col. Centro, Deleg. Cuauhtémoc
Ciudad de México, DF, 06059
Mexico

Nicolás Garrido

University of Chile ( email )

Pío Nono Nº1, Providencia
Santiago, R. Metropolitana 7520421
Chile

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