IDEAS home Printed from https://ideas.repec.org/p/col/000092/017801.html
   My bibliography  Save this paper

Reciprocal Lending Relationships Between Financial Conglomerates: Evidence from the Mexican Repo Market

Author

Listed:
  • Cañon, C

    ()

  • Flórez, J.H

    ()

  • Gómez, K

    ()

Abstract

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.

Suggested Citation

  • Cañon, C & Flórez, J.H & Gómez, K, 2020. "Reciprocal Lending Relationships Between Financial Conglomerates: Evidence from the Mexican Repo Market," Documentos de Trabajo 017801, Universidad del Rosario.
  • Handle: RePEc:col:000092:017801
    as

    Download full text from publisher

    File URL: https://repository.urosario.edu.co/bitstream/handle/10336/20793/dt243.pdf?sequence=3&isAllowed=y
    Download Restriction: no

    More about this item

    Keywords

    Reciprocal lending; collateralized money market; repo; banks; mutual funds; assetmanagers; market power; financial stability;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L4 - Industrial Organization - - Antitrust Issues and Policies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:col:000092:017801. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Facultad de Economía). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.