Unsecured and Secured Funding

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Tinbergen Institute Discussion Paper ; No. TI 2018-038/IV

Classification and Topics

• Classification: Wirtschaft ; Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems ; Interest Rates: Determination, Term Structure, and Effects ; Central Banks and Their Policies ; Financial Crises ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Financial Institutions and Services: Government Policy and Regulation
• Subject: Liquidity hoarding ; asymmetric information ; counterparty credit risk ; wholesale funding fragility ; interbank market ; liquidity

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Di Filippo, Mario ; Ranaldo, Angelo ; Wrampelmeyer, Jan
• Event: Veröffentlichung
• (who): Tinbergen Institute
• (where): Amsterdam and Rotterdam
• (when): 2018

Further information

• Handle: http://hdl.handle.net/10419/177728
• Last update: 10.03.2025, 11:44 AM CET