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Aggregate Risk and Lending Decisions in the Interbank Market

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  • ANUAR BECHARA
  • ALEJANDRO BERNALES
  • CARLOS CAÑÓN
  • NICOLÁS GARRIDO

Abstract

We introduce a novel measure of the market‐wide risk of the interbank market: the total (across all banks) uncollateralized/collateralized lending volume ratio: MwideRiskInterB$MwideRiskInterB$. This measure is based on the intuition that lender banks should use less (more) uncollateralized (collateralized) lending when aggregate risk increases, after controlling for banks’ features and market conditions that might affect MwideRiskInterB$MwideRiskInterB$ (e.g., banks’ credit risk, cross‐border inflows, supply–demand heterogeneity, and funding costs, among others). This is because collateralized loans are safer than uncollateralized ones after an interbank market‐wide collapse. Actually, we show that MwideRiskInterB$MwideRiskInterB$ modifies the future lending decisions and net lending holdings of individual banks.

Suggested Citation

  • Anuar Bechara & Alejandro Bernales & Carlos Cañón & Nicolás Garrido, 2026. "Aggregate Risk and Lending Decisions in the Interbank Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 58(1), pages 293-319, February.
    • Handle: RePEc:wly:jmoncb:v:58:y:2026:i:1:p:293-319
    DOI: 10.1111/jmcb.13153
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