Interbank market integration under asymmetric information

Arbeitspapier

While domestic interbank markets are often considered to work in an efficient way, cross-country bank lending appears to be subjected to market imperfections leading to persistent interest rate differentials. In a model where banks need to cope with liquidity shocks by borrowing or by liquidating assets, we study the scope for international interbank market integration with unsecured lending when cross-country information is noisy. We find that an equilibrium with integrated markets need not always exist, and that it coexists with one characterized by segmentation. A repo market reduces interest rate spreads and improves upon the segmentation equilibrium. However, it may destroy the unsecured integrated equilibrium.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 74

Classification and Topics

• Classification: Wirtschaft ; International Financial Markets ; Financial Institutions and Services: General ; Financial Aspects of Economic Integration
• Subject: Asymmetric information ; Banking theory ; financial integration ; Interbank markets

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Freixas, Xavier ; Holthausen, Cornelia
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2001

Further information

• Handle: http://hdl.handle.net/10419/152508
• Last update: 10.03.2025, 11:44 AM CET