Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2018-04-14
Number: 18-038/IV
Author-Name: Mario di Filippo
Author-Email: mdifilippo@worldbank.org
Author-Workplace-Name: The World Bank
Author-Name: Angelo Ranaldo
Author-Email: angelo.ranaldo@unisg.ch
Author-Workplace-Name: University of St. Gallen
Author-Name: Jan Wrampelmeyer
Author-Email: j.wrampelmeyer@vu.nl
Author-Workplace-Name: Vrije Universiteit Amsterdam
Title: Unsecured and Secured Funding
Abstract: We empirically investigate why wholesale funding is fragile by providing the first study of how individual banks borrow and lend in the euro unsecured and secured interbank market. Consistent with theories in which lenders enforce market discipline by monitoring counterparty credit risk and theories highlighting that secured loans are less informational sensitive, we find that banks with low credit worthiness replace unsecured borrowing with secured loans. Moreover, riskier lenders provide more secured loans to replace unsecured lending, which is not consistent with speculative or precautionary liquidity hoarding theories. Instead, lenders are precautionary in the sense that they prefer to lend against safe collateral.
Classification-JEL: E42, E43, E58, G01, G21, G28
Keywords: Liquidity hoarding, asymmetric information, counterparty credit risk, wholesale funding fragility, interbank market, liquidity
File-Url: https://papers.tinbergen.nl/18038.pdf
File-Format: application/pdf
File-Size: 553698 bytes
Handle: RePEc:tin:wpaper:20180038