Collateralized-Uncollateralized Funding Decision in Money Markets

79 Pages Posted: 27 Feb 2019 Last revised: 24 Sep 2019

Date Written: February 13, 2019

Abstract

Little is known about the factors that affect banks' relative preferences for collateralized and uncollateralized funding. We examine the determinants of the collateralized-uncollateralized funding decision using a unique dataset. We decompose the relative collateralized-uncollateralized funding activity into migrations and co-movements, including the directions of funding flows. Migrations and co-movements depend on various determinants, such as systemic risk, collateral availability and the inter-bank network structure. Interestingly, migrations and co-movements behave differently in periods of high financial stress, because safe assets (used as collateral to reduce counterparty risk) are then no longer perceived as safe as during periods of low-moderate financial stress.

Keywords: money markets, collateralized funding, uncollateralized funding, systemic risk

JEL Classification: E41, E51, G01, G21, G28.

Suggested Citation

Bernales, Alejandro and Cañón, Carlos and Garrido, Nicolás, Collateralized-Uncollateralized Funding Decision in Money Markets (February 13, 2019). Available at SSRN: https://ssrn.com/abstract=3336249 or http://dx.doi.org/10.2139/ssrn.3336249

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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