Synergies between Secured and Unsecured Money Markets

Autor: Carlos Ivan CaƱon Salazar
Coautor(es): Alejandro Bernales, Nicolas Garrido
We present a structural model to empirically capture information regarding migration events and co-movements between collateralized and unsecured funding activity, including directions of such interactions. We apply our model to the European and Mexican money markets. We show that collateralized segments do not act as shock absorbers in Europe and Mexico, when systemic risk increases during the 'heart' of crises (where funding liquidity is especially scarce). Unexpectedly, we find in both economies migrations from collateralized to unsecured segments as systemic risk grows inside the subprime crisis, which can be explained by the 'too-interconnected-to-fail' hypothesis and 'collateral droughts'.