Pricing in the Norwegian Interbank Market – The Effects of Liquidity and Implicit Government Support
55 Pages Posted: 24 Feb 2016
Date Written: February 02, 2016
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: Suggested Citation