What Drives Interbank Rates? Evidence from the Libor Panel

12 Pages Posted: 9 Jul 2012

See all articles by Francois-Louis Michaud

Francois-Louis Michaud

Banque de France

Christian Upper

Bank for International Settlements (BIS)

Date Written: March 3, 2008

Abstract

The risk premium contained in the interest rates on three-month interbank deposits at large, internationally active banks increased sharply in August 2007 and risk premiahave remained at an elevated level since. This feature aims to identify the drivers of this increase, in particular the role of credit and liquidity factors. While there is evidence of a role played by credit risk, at least at lower frequencies, the absence of a close relationship between the risk of default and risk premia in the money market, as well as the reaction of the interbank markets to central bank liquidity provisions, point to the importance of liquidity factors for banks’ day-to-day quoting behaviour.

JEL Classification: G21, G32

Suggested Citation

Michaud, Francois-Louis and Upper, Christian, What Drives Interbank Rates? Evidence from the Libor Panel (March 3, 2008). BIS Quarterly Review, March 2008, Available at SSRN: https://ssrn.com/abstract=1517680

Francois-Louis Michaud

Banque de France ( email )

Markets and Financial Stability Research Division
35-1490 Semasfi BP 140-01
Paris Cedeix 01, 75049
France
33 142 924 665 (Phone)
33 142 924 867 (Fax)

Christian Upper (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

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