Collateralized-Uncollateralized Funding Decision in Money Markets

84 Pages Posted: 15 Apr 2024

Date Written: March 28, 2024

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

Bechara Bitar, Anuar and Bernales, Alejandro and Canon Salazar, Carlos I. and Garrido, Nicolás, Collateralized-Uncollateralized Funding Decision in Money Markets (March 28, 2024). Available at SSRN: https://ssrn.com/abstract=4776436 or http://dx.doi.org/10.2139/ssrn.4776436

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 I. Canon Salazar

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Nicolás Garrido

University of Chile ( email )

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

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