The Purpose of Interbank Markets

Krause, Jens (2016) The Purpose of Interbank Markets. Said Business School Working Paper 2016-17.

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This paper tests competing theories of interbank lending using 43 quarters (2002-2012) of confifidential data on the German banking sector and interbank market. It shows that banks use the interbank market for liquidity co-insurance as traditionally assumed. However, the importance of the liquidity management function is higher for regionally-focused credit cooperatives and savings banks than for private commercial banks. A distinct effect for private banks is identified; for private banks, increases in interbank liabilities are shown to correlate with a proxy for the bailout probability of banks. The paper thus offers empirical support for an emerging literature on strategic behaviour in interbank markets and highlights the need to extend the traditional model of liquidity co-insurance.

Item Type: Oxford Saïd Research Paper
Keywords: Finance, interbank lending, interbank market, empirics, Germany, liquidity needs
Subject(s): Finance
Date Deposited: 01 Jun 2016 11:17
Last Modified: 03 Jun 2016 14:55
Funders: N/A

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