Interbank Overnight Interest Rates - Gains from Systemic Importance

33 Pages Posted: 9 Jul 2010

See all articles by Q. Farooq Akram

Q. Farooq Akram

Norges Bank - Research Department

Casper Christophersen

Norges Bank - Research Department

Date Written: June 30, 2010

Abstract

We study overnight interbank interest rates paid by banks in Norway over the period 2006-2009. We observe large variations in interest rates across banks and over time. During the financial crisis, the interest rates are found to be substantially below indicative quotes of interest rates provided by major banks. Our econometric model attributes the interest rate variation partly to differences in banks' characteristics including relative size and connectedness, implying favorable terms for banks of systemic importance. Moreover, interest rates are found to depend not only on overall liquidity in the interbank market, but possibly on its distribution among banks as well, suggesting exploitation of market power by banks with surplus liquidity. There is also evidence of stronger effects on interest rates of systemic importance, credit ratings and liquidity demand and supply since the start of the current financial crisis.

Keywords: Interbank Money Market, Interest Rates, Systemic Importance

JEL Classification: G21, E42, E43, E58

Suggested Citation

Akram, Q. Farooq and Christophersen, Casper, Interbank Overnight Interest Rates - Gains from Systemic Importance (June 30, 2010). Norges Bank Working Paper No. 2010/11. Available at SSRN: https://ssrn.com/abstract=1636763 or http://dx.doi.org/10.2139/ssrn.1636763

Q. Farooq Akram (Contact Author)

Norges Bank - Research Department ( email )

PO Box 1179 Sentrum
N-0107 Oslo
Norway

Casper Christophersen

Norges Bank - Research Department ( email )

P.O. Box 1179
Oslo, N-0107
Norway

Register to save articles to
your library

Register

Paper statistics

Downloads
105
Abstract Views
747
rank
255,029
PlumX Metrics