Liquidity Risk Premia in Unsecured Interbank Money Markets

42 Pages Posted: 6 Mar 2009

See all articles by Jens Eisenschmidt

Jens Eisenschmidt

European Central Bank (ECB)

Jens Tapking

European Central Bank (ECB)

Date Written: March 6, 2009

Abstract

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

Eisenschmidt, Jens and Tapking, Jens, Liquidity Risk Premia in Unsecured Interbank Money Markets (March 6, 2009). ECB Working Paper No. 1025, Available at SSRN: https://ssrn.com/abstract=1340854

Jens Eisenschmidt (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Jens Tapking

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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