Interbank lending, credit risk premia and collateral

Arbeitspapier

We study the functioning of secured and unsecured inter-bank markets in the presence of credit risk. The model generates empirical predictions that are in line with developments during the 2007-2009 financial crises. Interest rates decouple across secured and unsecured markets following an adverse shock to credit risk. The scarcity of underlying collateral may amplify the volatility of interest rates in secured markets. We use the model to discuss various policy responses to the crisis.

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• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 1107

Classification and Topics

• Classification: Wirtschaft ; Financial Crises ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Central Banks and Their Policies
• Subject: collateral ; Credit risk ; financial crisis ; Interbank Market ; liquidity ; Geldmarkt ; Kreditrisiko ; Kreditsicherung ; Finanzkrise ; Theorie ; Eurozone ; USA

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Heider, Florian ; Hoerova, Marie
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2009

Further information

• Handle: http://hdl.handle.net/10419/153541