Liquidity Risk Premia in Unsecured Interbank Money Markets
42 Pages Posted: 6 Mar 2009
Date Written: March 6, 2009
Unsecured interbank money market rates such as the Euribor increased strongly with the start of the financial market turbulences in August 2007. There is clear evidence that these rates reached levels that cannot be explained alone by higher credit risk. This article presents this evidence and provides a theoretical explanation which refers to the funding liquidity risk of lenders in unsecured term money markets.
Keywords: Liquidity premium, interbank money markets, unsecured lending, 2007/2008 financial market turmoil
JEL Classification: G01, G10, G21
Suggested Citation: Suggested Citation