How Stressed are Banks in the Interbank Market?

30 Pages Posted: 21 Jun 2016

See all articles by Puriya Abbassi

Puriya Abbassi

Deutsche Bundesbank

Falko Fecht

Frankfurt School of Finance & Management

Patrick Weber

Frankfurt School of Finance & Management

Date Written: 2013

Abstract

We use a unique data set that comprises each bank's bids in the Eurosystem's main refinancing operations and its recourse to the LOLR facility (a) to derive banks' willingness-to-pay for liquidity through a one-week repo and (b) to show that a bank's willingness-to-pay is a good indicator for the probability that this bank draws on the LOLR facility. Our results suggest (i) that banks' willingness-to-pay for liquidity indeed reflects refinancing conditions in the interbank market and (ii) that the willingness-to-pay can serve as an early warning indicator for banking distress.

Keywords: banks, liquidity, LOLR facility, repos, money markets, frictions

JEL Classification: D44, E42, E58, G21

Suggested Citation

Abbassi, Puriya and Fecht, Falko and Weber, Patrick, How Stressed are Banks in the Interbank Market? (2013). Bundesbank Discussion Paper No. 40/2013, Available at SSRN: https://ssrn.com/abstract=2796933

Puriya Abbassi (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany
00496965993708 (Phone)

Falko Fecht

Frankfurt School of Finance & Management ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

Patrick Weber

Frankfurt School of Finance & Management ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
19
Abstract Views
422
PlumX Metrics