Download or read book Liquidity Hoarding and Interbank Market Spreads written by Florian Heider and published by . This book was released on 2016 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop a model of interbank lending and borrowing with counterparty risk. The model has two key ingredients. First, liquidity in the banking sector is endogenous, which means that there is an opportunity cost of holding liquid assets. Second, banks are privately informed about the risk of their long-term assets, which can lead to adverse selection and high interest rates in the interbank market. We identify a novel form of a market break-down, which can lead to liquidity hoarding. It arises because adverse selection in the interbank market changes the opportunity cost of holding liquidity. We use the model to shed light on developments in interbank markets prior to and during the 2007-09 financial crisis, as well as the effectiveness of policy interventions aimed at restoring interbank market activity.
Download or read book Liquidity Hoarding and Interbank Market Spreads written by Florian Heider and published by . This book was released on 2010 with total page 55 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the functioning and possible breakdown of the interbank market in the presence of counterparty risk. We allow banks to have private information about the risk of their assets. We show how banks' asset risk affects funding liquidity in the interbank market. Several interbank market regimes can arise: i) normal state with low interest rates; ii) turmoil state with adverse selection and elevated rates; and iii) market breakdown with liquidity hoarding. We provide an explanation for observed developments in the interbank market before and during the 2007-09 financial crisis (dramatic increases of unsecured rates and excess reserves banks hold, as well as the inability of massive liquidity injections by central banks to restore interbank activity). We use the model to discuss various policy responses.
Download or read book Stressed Not Frozen written by Gara Afonso and published by DIANE Publishing. This book was released on 2011 with total page 61 pages. Available in PDF, EPUB and Kindle. Book excerpt: This is a print on demand edition of a hard to find publication. Examines the impact of the financial crisis of 2008, specifically the bankruptcy of Lehman Brothers, on the federal funds market. Rather than a complete collapse of lending in the presence of a market-wide shock, banks became more restrictive in their choice of counter-parties. Following the Lehman bankruptcy, amounts and spreads became more sensitive to a borrowing bank¿s characteristics. While the market did not contract dramatically, lending rates increased. Further, the market did not seem to expand to meet the increased demand predicted by the drop in other bank funding markets. The authors examine discount window borrowing as a proxy for unmet fed funds demand and find that the fed funds market is not indiscriminate. Illustrations.
Download or read book Stressed Not Frozen written by Gara Afonso and published by . This book was released on 2010 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: This paper examines the impact of the financial crisis of 2008 on the federal funds market, specifically the bankruptcy of Lehman Brothers. Rather than a complete collapse of lending in the presence of a market wide shock, we see that banks become more restrictive in which counterparties they lend to. After Lehman Brothers, we find that amounts and spreads become more sensitive to borrower bank characteristics. While the market does not contract dramatically, lending rates increase. Further, the market does not seem to expand to meet the increased demand predicted by the drop in other bank funding markets. We examine discount window borrowing as a proxy for unmet fed funds demand and find that the fed funds market is not indiscriminate. As expected, borrowers who access the discount window have lower ROA. When looking at the lender side we do not find that the characteristics of the lending bank importantly affect the amount of interbank loans a bank makes. In particular, we do not find that worse performing banks start hoarding liquidity and indiscriminately reduce their lending
Download or read book A model of liquidity hoarding and term premia in inter bank markets written by Viral V. Acharya and published by . This book was released on 2011 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Effects of Bank Capital on Lending written by Joseph M. Berrospide and published by DIANE Publishing. This book was released on 2011-04 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: The effect of bank capital on lending is a critical determinant of the linkage between financial conditions and real activity, and has received especial attention in the recent financial crisis. The authors use panel-regression techniques to study the lending of large bank holding companies (BHCs) and find small effects of capital on lending. They then consider the effect of capital ratios on lending using a variant of Lown and Morgan's VAR model, and again find modest effects of bank capital ratio changes on lending. The authors¿ estimated models are then used to understand recent developments in bank lending and, in particular, to consider the role of TARP-related capital injections in affecting these developments. Illus. A print on demand pub.
Download or read book A Model of Liquidity Hoarding and Term Premia in Inter bank Markets written by Viral V. Acharya and published by . This book was released on 2011 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Bank Liquidity Creation and Financial Crises written by Allen N. Berger and published by Academic Press. This book was released on 2015-11-24 with total page 296 pages. Available in PDF, EPUB and Kindle. Book excerpt: Bank Liquidity Creation and Financial Crises delivers a consistent, logical presentation of bank liquidity creation and addresses questions of research and policy interest that can be easily understood by readers with no advanced or specialized industry knowledge. Authors Allen Berger and Christa Bouwman examine ways to measure bank liquidity creation, how much liquidity banks create in different countries, the effects of monetary policy (including interest rate policy, lender of last resort, and quantitative easing), the effects of capital, the effects of regulatory interventions, the effects of bailouts, and much more. They also analyze bank liquidity creation in the US over the past three decades during both normal times and financial crises. Narrowing the gap between the "academic world" (focused on theories) and the "practitioner world" (dedicated to solving real-world problems), this book is a helpful new tool for evaluating a bank’s performance over time and comparing it to its peer group. Explains that bank liquidity creation is a more comprehensive measure of a bank’s output than traditional measures and can also be used to measure bank liquidity Describes how high levels of bank liquidity creation may cause or predict future financial crises Addresses questions of research and policy interest related to bank liquidity creation around the world and provides links to websites with data and other materials to address these questions Includes such hot-button topics as the effects of monetary policy (including interest rate policy, lender of last resort, and quantitative easing), the effects of capital, the effects of regulatory interventions, and the effects of bailouts
Download or read book Relationship Lending in the Interbank Market and the Price of Liquidity written by Falk Bräuning and published by . This book was released on 2016 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book A Network View on Interbank Market Freezes written by Silvia Gabrieli and published by . This book was released on 2016 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the liquidity allocation among European banks around the Lehman insolvency using a novel dataset of all interbank loans settled via the Eurosystem's payment system TARGET2. Following the Lehman insolvency, lenders in the overnight segment become sensitive to counterparty characteristics and banks start hoarding liquidity by shortening the maturity of their interbank lending. This aggregate change in liquidity reallocation is accompanied by a substantial structural change that can best be characterized as a shrinking of the interbank network. Such a change in the network structure is consequential: banks with higher centrality within the network have better access to liquidity and are able to charge larger intermediation spreads. Therefore, we show the existence of a sizeable interbank lending channel.
Download or read book Liquidity Risk Contagion in the Interbank Market written by Andrea Eross and published by . This book was released on 2016 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies liquidity risk contagion within the interbank market by assessing the long-run relationship of short-term interest rate spreads from January 2002 to December 2015. In particular, we model the interaction between the LIBOR-OIS spread, euro fixed-float OIS swap rate and the three-month US-German bond spread and discover strong evidence of structural innovations affecting the interbank market. We find that when the short-term interbank market is affected by a liquidity shock, the LIBOR-OIS spread is a leader in moving back to equilibrium, while the euro fixed-float OIS swap rate and the US-German bond spreads are followers. Moreover, we find long-run cointegrating relationships and bi-directional causality between the spreads. However, structural breaks identified as prospective financial crises affect the long-run relationships and liquidity shocks drive interbank rates and spread fluctuations. Therefore, liquidity shocks propagating within the interbank market can forecast benchmark interest movements and ultimately this has significant implications for policymakers and market players alike.
Download or read book Cross border Liquidity Relationships and Monetary Policy written by and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Price of Liquidity written by Falko Fecht and published by . This book was released on 2008 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Financial Markets and the Macroeconomy written by Carl Chiarella and published by Routledge. This book was released on 2009-06-02 with total page 513 pages. Available in PDF, EPUB and Kindle. Book excerpt: This important new book from a group of Keynesian, but nonetheless technically-oriented economists explores one of the dominant paradigms in financial economics: the ‘intertemporal general equilibrium approach’.
Download or read book Quantifying Systemic Risk written by Joseph G. Haubrich and published by University of Chicago Press. This book was released on 2013-01-24 with total page 286 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the aftermath of the recent financial crisis, the federal government has pursued significant regulatory reforms, including proposals to measure and monitor systemic risk. However, there is much debate about how this might be accomplished quantitatively and objectively—or whether this is even possible. A key issue is determining the appropriate trade-offs between risk and reward from a policy and social welfare perspective given the potential negative impact of crises. One of the first books to address the challenges of measuring statistical risk from a system-wide persepective, Quantifying Systemic Risk looks at the means of measuring systemic risk and explores alternative approaches. Among the topics discussed are the challenges of tying regulations to specific quantitative measures, the effects of learning and adaptation on the evolution of the market, and the distinction between the shocks that start a crisis and the mechanisms that enable it to grow.
Download or read book Negative Monetary Policy Rates and Portfolio Rebalancing Evidence from Credit Register Data written by Margherita Bottero and published by International Monetary Fund. This book was released on 2019-02-28 with total page 59 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study negative interest rate policy (NIRP) exploiting ECB's NIRP introduction and administrative data from Italy, severely hit by the Eurozone crisis. NIRP has expansionary effects on credit supply-- -and hence the real economy---through a portfolio rebalancing channel. NIRP affects banks with higher ex-ante net short-term interbank positions or, more broadly, more liquid balance-sheets, not with higher retail deposits. NIRP-affected banks rebalance their portfolios from liquid assets to credit—especially to riskier and smaller firms—and cut loan rates, inducing sizable real effects. By shifting the entire yield curve downwards, NIRP differs from rate cuts just above the ZLB.
Download or read book The Transmission of Liquidity Shocks written by Mr.Philippe D Karam and published by International Monetary Fund. This book was released on 2014-11-19 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze the transmission of bank-specific liquidity shocks triggered by a credit rating downgrade through the lending channel. Using bank-level data for US Bank Holding Companies, we find that a credit rating downgrade is associated with an immediate and persistent decline in access to non-core deposits and wholesale funding, especially during the global financial crisis. This translates into a reduction in lending to households and non-financial corporates at home and abroad. The effect on domestic lending, however, is mitigated when banks (i) hold a larger buffer of liquid assets, (ii) diversify away from rating-sensitive sources of funding, and (iii) activate internal liquidity support measures. Foreign lending is significantly reduced during a crisis at home only for subsidiaries with weak funding self-sufficiency.
