Reciprocal Lending Relationships Between Financial Conglomerates: Evidence from the Mexican Repo Market
This paper examines the reciprocal lending between Financial Conglomerates in the repo market to better understand both what motivates powerful firms to engage in this type of contemporaneous crossfunding relationships, and, on the other hand, some of the implications that such reciprocal transactio...
- Autores:
- Tipo de recurso:
- Fecha de publicación:
- 2020
- Institución:
- Universidad del Rosario
- Repositorio:
- Repositorio EdocUR - U. Rosario
- Idioma:
- eng
- OAI Identifier:
- oai:repository.urosario.edu.co:10336/20793
- Acceso en línea:
- https://doi.org/10.48713/10336_20793
https://repository.urosario.edu.co/handle/10336/20793
- Palabra clave:
- Economía financiera
G01
G11
G21
G23
G28
L16
L22
L4
Reciprocal lending
collateralized money market
repo
banks
mutual funds
asset managers
market power
financial stability
Reciprocal lending
Collateralized money market
Repo
Banks
Mutual funds
Asset managers
Market power
Financial stability
Análisis de conglomerados empresariales
Administración de créditos
Política crediticia
Financiamiento de empresas
Riesgo (Finanzas
Préstamos recíprocos
- Rights
- License
- http://purl.org/coar/access_right/c_abf2
Summary: | This paper examines the reciprocal lending between Financial Conglomerates in the repo market to better understand both what motivates powerful firms to engage in this type of contemporaneous crossfunding relationships, and, on the other hand, some of the implications that such reciprocal transactions may entail for the agents involved and for the market as a whole. In particular, in terms of the implications we focus on two dimensions: first, the potential effects that reciprocal lending has on the market power of FCs and the competitiveness of the repo market for mutual funds and second, the potential implications that frequent and stable reciprocal lending can have in terms of the industry’s systemic risk. Using transaction-level data from the Mexican repo market, we show that reciprocal lending between financial conglomerates is mutually beneficial as it reduces search costs for borrowers and mitigates credit risk concerns for lenders. Further, we find that reciprocal lending favors market concentration of the repo lending in a few powerful funds and increases fund market power. Finally, we find that reciprocal lending also leads to centrality within the financial network and increases the dependence between the parties involved. Interestingly, a higher intensity of reciprocal lending can harmful, but this does not necessarily deteriorates financial stability. |
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