Reciprocal Lending Relationships Between Financial Conglomerates: Evidence from the Mexican Repo Market

58 Pages Posted: 13 May 2019 Last revised: 26 Mar 2021

See all articles by Carlos Cañón

Carlos Cañón

Banco de México

Jorge Florez-Acosta

Universidad del Rosario

Karoll Gomez

Universidad Nacional de Colombia

Date Written: February 1, 2021

Abstract

This paper examines the reciprocal lending (RL) relationships between financial conglomerates
(FCs) in the repo market. Using transaction-level data from Mexico, we find that the main economic
force behind RL relationships is related to the possibility to build deep and intense mutual lending
relationships in the repo market and execute them at lower rates. Further, we find that RL favors
market concentration of the repo lending in a few funds and increases FC-affiliated fund market
power. Finally, a deep reciprocal relationship between FCs lowers systemic risk and also decreases
the bank-level contribution to it. However, when funds depend more on a single bank to position
their excess liquidity, systemic risk increases.

Keywords: reciprocal lending, collateralized money market, banks, asset managers, competition policy, financial stability

JEL Classification: G01, G11, G21, G23, G28, L16, L22, L4

Suggested Citation

Cañón, Carlos and Florez-Acosta, Jorge and Gomez, Karoll, Reciprocal Lending Relationships Between Financial Conglomerates: Evidence from the Mexican Repo Market (February 1, 2021). Available at SSRN: https://ssrn.com/abstract=3371036 or http://dx.doi.org/10.2139/ssrn.3371036

Carlos Cañón (Contact Author)

Banco de México ( email )

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

Jorge Florez-Acosta

Universidad del Rosario ( email )

Calle 12 No. 6-25
Bogota, DC
Colombia

HOME PAGE: http://https://sites.google.com/site/jorgeflorezacosta/home

Karoll Gomez

Universidad Nacional de Colombia ( email )

Carrera 30 No 45 - 03
Edificio 311
Bogotá, Bogotá None
Colombia

HOME PAGE: http://karollgomez.wordpress.com

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