Unsecured and Secured Funding

Mario Di Filippo; Angelo Ranaldo; Jan Wrampelmeyer

doi:10.1111/jmcb.12855

Unsecured and Secured Funding

Mario Di Filippo
, Angelo Ranaldo
, Jan Wrampelmeyer^*

^*Corresponding author for this work

Research output: Contribution to Journal › Article › Academic › peer-review

Abstract

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.

Original language	English
Pages (from-to)	651-662
Number of pages	12
Journal	Journal of Money, Credit and Banking
Volume	54
Issue number	2-3
Early online date	20 Jul 2021
DOIs	https://doi.org/10.1111/jmcb.12855
Publication status	Published - Apr 2022

Bibliographical note

Funding Information:
We thank participants of the 25th Annual Meeting of the German Finance Association, the 2016 Maastricht Workshop for Advances in Quantitative Economics, the Sinergia Conference at Rigi Kaltbad, and research seminars at BaFin, Deutsche Bundesbank, Lund University, Swiss National Bank, University of Geneva, University of Tilburg, and University of Zurich for helpful comments. The research presented in this paper was conducted when Mario di Filippo was an economist at Banque de France, as a member of one of the user groups with access to TARGET2 information (which is one of the data sets used in this paper) in accordance with Article 1(2) of Decision ECB/2010/9 of July 29, 2010, on access to and use of certain TARGET2 data. The views expressed in this paper are solely those of the authors. Moreover, the authors are grateful to Eurex Repo GmbH for providing the repo data and to René Winkler and Florian Seifferer for helpful comments and insightful discussions. This work was supported by the Sinergia grant “Empirics of Financial Stability” from the Swiss National Science Foundation (154445).

Publisher Copyright:
© 2021 The Authors. Journal of Money, Credit and Banking published by Wiley Periodicals LLC on behalf of Ohio State University.

Copyright:
Copyright 2021 Elsevier B.V., All rights reserved.

Funding

We thank participants of the 25th Annual Meeting of the German Finance Association, the 2016 Maastricht Workshop for Advances in Quantitative Economics, the Sinergia Conference at Rigi Kaltbad, and research seminars at BaFin, Deutsche Bundesbank, Lund University, Swiss National Bank, University of Geneva, University of Tilburg, and University of Zurich for helpful comments. The research presented in this paper was conducted when Mario di Filippo was an economist at Banque de France, as a member of one of the user groups with access to TARGET2 information (which is one of the data sets used in this paper) in accordance with Article 1(2) of Decision ECB/2010/9 of July 29, 2010, on access to and use of certain TARGET2 data. The views expressed in this paper are solely those of the authors. Moreover, the authors are grateful to Eurex Repo GmbH for providing the repo data and to René Winkler and Florian Seifferer for helpful comments and insightful discussions. This work was supported by the Sinergia grant “Empirics of Financial Stability” from the Swiss National Science Foundation (154445).

Funders	Funder number
Schweizerischer Nationalfonds zur Förderung der Wissenschaftlichen Forschung	20433, 154445

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

SDG 8 Decent Work and Economic Growth

Keywords

counterparty credit risk
funding risk
interbank market
repurchase agreements
unsecured funding

Access to Document

10.1111/jmcb.12855

Persistent URL (handle)

Persistent link

Cite this

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title = "Unsecured and Secured Funding",

abstract = "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.",

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N2 - 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.

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Unsecured and Secured Funding

Abstract

Bibliographical note

Funding

UN SDGs

Keywords

Access to Document

Persistent URL (handle)

Other files and links

Cite this