The Secured-Unsecured Funding Relationship with (without) Central Clearing

Authors: Alejandro Bernales (Universidad de Chile)

Title: The Secured-Unsecured Funding Relationship with (without) Central Clearing

Abstract: We present a model to capture migrations and co-movements concerning trading activity in the relationship between collateralized and unsecured funding. We apply our model to the European (Mexican) money market, which has (does not have) central clearing counterparties, CCPs, in the collateralized segment. We report that CCPs only help financial stability in the case of moderate aggregate-systemic risk, by allowing migrations from unsecured to collateralized funding when liquidity is scarce in initial periods of crisis. We also show that migrations between funding channels explain the money market performance regarding interest rate spread, concentration to specific collateral types and network centrality.