The Purpose of Interbank Markets

Résumé du livre

This paper tests competing theories of interbank lending using 43 quarters (2002-2012) of confidential 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.