Interbank Intermediation

45 Pages Posted: 21 Jun 2016  

Marcel Bluhm

Wang Yanan Institute for Studies in Economics; Center for Financial Studies

Co-Pierre Georg

Deutsche Bundesbank; University of Cape Town (UCT)

Jan Pieter Krahnen

Faculty of Economics and Business Administration; Goethe University Frankfurt - Research Center SAFE; Center for Financial Studies (CFS); Centre for Economic Policy Research (CEPR)

Date Written: 2016

Abstract

This paper explores the economics of interbank lending and borrowing using bank-balance sheet data for Germany, the largest European economy. Our 2002 - 2014 panel data set allows us to analyze the cross section and the dynamics of the observed interbank exposures. Our findings suggest a genuine intermediation process within the banking system, with implications for allocative efficiency and financial stability. A typical bank in our sample holds a significant amount of term and overnight interbank positions on both sides of the balance sheet simultaneously, and at any point in time. The average contract length in the German interbank market is well above one year, which stands in contrast to the widely held view that interbank exposures are largely overnight. Based on panel regressions, we find the build-up of the interbank book to be driven by innovations in the client book (i.e. non-bank deposit taking and lending). The resulting interbank book affects the bank's duration gap, the maturity disparity between bank assets and bank liabilities. A bank's duration gap is often seen as its major macroeconomic risk factor. Overall our findings lend support to a theory of banking that involves leverage stacks, i.e intermediation among banks.

Keywords: interbank markets, liquidity, financial stability

JEL Classification: G2

Suggested Citation

Bluhm, Marcel and Georg, Co-Pierre and Krahnen, Jan Pieter, Interbank Intermediation (2016). Bundesbank Discussion Paper No. 16/2016. Available at SSRN: https://ssrn.com/abstract=2797089

Marcel Bluhm (Contact Author)

Wang Yanan Institute for Studies in Economics ( email )

A 307, Economics Building
Xiamen, Fujian 361005
China

Center for Financial Studies ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Co-Pierre Georg

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
D-60431 Frankfurt/Main
Germany

University of Cape Town (UCT) ( email )

Private Bag X3
Rondebosch, 7701
South Africa

Jan Pieter Krahnen

Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60629
Germany
+49 69 798 33699 (Phone)
+49 69 798 33901 (Fax)

Goethe University Frankfurt - Research Center SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60629
Germany
+49 69 798 30080 (Phone)
+49 69 798 30077 (Fax)

Center for Financial Studies (CFS) ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60629
Germany
+49 69 798 30050 (Phone)
+49 69 798 30077 (Fax)

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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