Pricing in the Norwegian Interbank Market – The Effects of Liquidity and Implicit Government Support

55 Pages Posted: 24 Feb 2016

See all articles by Q. Farooq Akram

Q. Farooq Akram

Norges Bank - Research Department

Casper Christophersen

Norges Bank - Research Department

Multiple version iconThere are 2 versions of this paper

Date Written: February 02, 2016

Abstract

We investigate the effects of central bank liquidity and possible implicit government guarantees against default on Norwegian overnight interbank interest rates. We conduct an econometric study of these interest rates over the period 2006-2009, which includes the sharp fall in interbank trading during the financial crisis. Our findings suggest relatively lower funding costs for banks of systemic importance, particularly for banks with many and valuable linkages to other banks. Moreover, interest rates are found to depend not only on overall liquidity in the interbank market, but on its distribution among banks as well. There is also evidence of stronger effects on interest rates of systemic importance, creditworthiness and liquidity demand and supply factors during the financial crisis.

Keywords: Interbank money market, Interest rates, Systemic importance

JEL Classification: G21, E43, E58

Suggested Citation

Akram, Q. Farooq and Christophersen, Casper, Pricing in the Norwegian Interbank Market – The Effects of Liquidity and Implicit Government Support (February 02, 2016). Norges Bank Working Paper 02/2016. Available at SSRN: https://ssrn.com/abstract=2736859

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

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