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Liquidity Hoarding and Interbank Market Spreads: The Role of Counterparty Risk (Heider F., Hoerova M., Holthausen C.)

Financial Crises Information Asymmetry and Transparency Interbank Markets Liquidity Risk-taking and Risk Management

Abstract We study how the risk of bank assets, and banks' private information about it, affects the trading and pricing of liquidity in the interbank market. An interplay between liquidity and credit risk, and expectations about the risk of the pool of borrowing banks, determines the interbank rate. Depending on the level and dispersion of risk, different regimes arise: smooth trading with low rates, adverse selection with elevated rates and a market dry-up leading to precautionary hoarding of liquidity. We derive new testable implications and use the model to examine developments prior to and during the 2007-09 financial crisis, as well as the effectiveness of policy interventions.
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Libref/ Heider F., Hoerova M., Holthausen C. (2009) “Liquidity Hoarding and Interbank Market Spreads: The Role of Counterparty Risk”, ECB Working Paper № 1126,pp. 1-66
© Программирование — Александр Красильников, 2008
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