|Researchers:||Marcel Bluhm, Co-Pierre Georg, Jan Pieter Krahnen|
|Category:||Financial Intermediation, Systemic Risk Lab|
Topic & Objectives
The financial crisis of 2008 forced many banks to rely on direct liquidity support from the European Central Bank leaving the interbank market partly dysfunctional. However, since non-standard monetary policy measures will have to be wound down soon the understanding of this crucial part of the financial system is highly important. The approach of this research proposal is threefold. First, two confidential datasets provided by the Bundesbank are compiled and merged capturing bilateral interbank exposures and detailed banks’ balance sheet information. Second, taking a system perspective the project analyzes the formation of interbank exposures over time extending standard measures from complex system analysis. Third, state-of-the-art dynamic panel probit and tobit models are used to investigate micro- and macro-based explanatory variables which provide information on bilateral network formation in the interbank market. Finally, the project also sheds light on the changing role of interbank markets.
The work so far shows evidence for (i) a highly stable network of exposures among banks, (ii) interbank network (in/out degree, interconnectedness) and loan volume being highly correlated with macroeconomic variables, (iii) banks funding themselves on the interbank market after providing more credit to the real economy, (iv) banks providing more liquidity on the interbank market subsequent to increasing previous deposit inflows.
- In the German interbank market, interbank lending accounts for a significant share of an average bank's balance sheet.
- The network of interbank loans is both sparse and persistent over time.
- The average interbank exposure among commercial banks in Germany is longer than one year.
- Banks hold significant interbank exposures on both sides of their balance sheet simultaneously. These can be jointly explained if the interbank market is understood as a system of stacked interbank loans.
- Banks may use different maturity segments of the interbank market to manage their duration gap defined as the difference between weighted maturity of a bank's assets and liabilities.
- We find that innovations in the client book play a significant role in explaining the dynamics of the interbank book.
|Marcel Bluhm||Persistent Liquidity Shocks and Interbank Funding|
Journal of Financial Stability
|2018||Financial Intermediation, Systemic Risk Lab||Financial fragility, Interbank market, Liquidity, Maturity, Network|