Unsecured and Secured Funding

Angelo Ranaldo and Jan Wrampelmeyer ()

No 1616, Working Papers on Finance from University of St. Gallen, School of Finance

Abstract: We provide the first joint analysis of the secured and unsecured money markets of the euro area using bank-level data. After the Lehman crisis, two important substitution mechanisms emerge: banks with higher credit risk offset reductions of unsecured borrowing with secured funding. Riskier banks replace unsecured lending by granting more secured loans. However, high leverage and reliance on short-term funding hamper banks' ability to substitute. Moreover, banks enduring money market strains contribute to the credit crunch. Overall, our findings suggest that the secured segment of the euro money market contributes to financial stability, mitigating systemic effects such as short-term funding strains and contagion.

Keywords: Money markets; bank funding; short-term debt; financial crisis; counterparty risk; liquidity (search for similar items in EconPapers)
JEL-codes: E42 E43 E58 G01 G21 G28 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2016
New Economics Papers: this item is included in nep-ban, nep-eec and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Unsecured and Secured Funding (2022)
Working Paper: Unsecured and Secured Funding (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:usg:sfwpfi:2016:1

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