Over The Counter (OTC) markets are an essential part of modern financial systems. However, there are some aspects which have placed them at the center of current regulatory efforts at the international level. Among these markets, the unsecured and secured (repo) interbank markets have received substantial attention from the academia and financial authorities as they represent two of the most direct sources of liquidity for banks. In this paper we investigate if trading relationships are established between banks in the unsecured and the repo market in Mexico and if such borrowing and lending relationships are important in terms of costs during different economic conditions. Unlike other related previous works, we are able to identify with full precision individual transactions between banks both in the unsecured and the repo market for a long period of time. In Mexico, there exist regulatory reports which provide us with daily data with an important level of detail for these two OTC markets. We find evidence of liquidity hoarding. A negative external funding shock lead banks to lend less at the interbank market, except to banks with which it holds a trading relationship. In particular, banks that highly depend on external funding lend less when they are affected by a shock. Authors: Marco van der Leij (U Amsterdam), Serafin Martinez-Jaramillo, José Luis Molina-Borboa, Fabrizio López-Gallo (Banco de México)
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