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Essays on Interbank Markets
Stockholm University, Faculty of Social Sciences, Department of Economics.
2019 (English)Doctoral thesis, monograph (Other academic)
Abstract [en]

This dissertation consists of three self-contained chapters.

Price Segmentation on the Interbank Market. Interbank markets are often characterized by a core-periphery structure. The core-banks may hold a favorable position in the short-term unsecured interbank market due to e.g. greater market knowledge, market power, and stronger relationships. In this chapter, I use a data set on the total unsecured interbank lending and borrowing made by the seven largest banks in Sweden. I find that there exists a significant segmentation in prices for core-banks vs. periphery-banks. In addition, the size of the segmentation in pricing is connected to the amount of liquidity available on the interbank market. This means that monetary policy instruments that increase the size of the liquidity surplus risk increase the segmentation in prices and thereby diminish the efficiency of the implementation of monetary policy through the main monetary policy rate.

Systemic Liquidity Risk on the Swedish Interbank Market. This chapter aims at measuring systemic liquidity risk on the Swedish interbank market using the novel approach of Cohen-Cole, Patacchini and Zenou (2015), allowing for both positive and negative measures of systemic liquidity risk. This chapter brings this model to the data, using restricted Swedish interbank data collected by the Riksbank where it is possible to identify the banks of the data sets, thereby allowing us to control for bank-specific characteristics. We find that the systemic liquidity risk increased in 2008-2009 as the banks became reluctant to both lend and borrow. For lending networks, this is expected because of the decrease in confidence between banks. For borrowing, this is likely a result of the vast increase in available liquidity stemming from loan facilities by the central bank. The implication is that liquidity shocks were amplified in the interbank network. In addition, we identify the Key Player among banks and show that this does not coincide with simple measures such as degree and total volume, and can thus complement the analysis in identifying systemically important institutions.

Committed Quotes in Reference Rate Mechanisms. When the LIBOR scandal was revealed in 2012, it became clear that interbank reference rates were manipulated. Following this revelation, policy makers around the world started to suggest adjustments to decrease the risk of manipulation. One of these adjustments that was presented was the committed quotes reference rate mechanism that forces the banks to trade with each other using the submitted quotes. In this chapter, I study the panel bank's change in behavior following the introduction of a committed quotes mechanism using data on submitted quotes for the Copenhagen Interbank Offered Rate (CIBOR). The results suggest that the behavior of the banks changed; the intraday variance increased by more than 40 percent in connection with the introduction. I also present a simple model to illustrate the underlying reasons for the detected change in behavior. The driving force in the model is the banks' desire to submit quotes close to the expected market rate. Introducing a commitment to trade on the quotes then pushes the submissions closer to the banks' interest rates which leads to a larger intraday variance. However, the quotes will never, everything else unchanged, equal the banks' interest rates.

Place, publisher, year, edition, pages
Stockholm: Department of Economics, Stockholm University , 2019. , p. 121
Series
Dissertations in Economics, ISSN 1404-3491 ; 2019:2
Keywords [en]
Interbank markets, contagion, economics of networks, interbank reference rates
National Category
Economics
Research subject
Economics
Identifiers
URN: urn:nbn:se:su:diva-168189ISBN: 978-91-7797-686-8 (print)ISBN: 978-91-7797-687-5 (electronic)OAI: oai:DiVA.org:su-168189DiVA, id: diva2:1306677
Public defence
2019-06-12, Nordenskiöldsalen, Geovetenskapens hus, Svante Arrhenius väg 12, Stockholm, 10:00 (English)
Opponent
Supervisors
Available from: 2019-05-20 Created: 2019-04-24 Last updated: 2019-05-10Bibliographically approved

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