Does a Bank Levy Increase Frictions on the Interbank Market?

32 Pages Posted: 24 May 2018

See all articles by Aneta Hryckiewicz

Aneta Hryckiewicz

Goethe University of Frankfurt; Kozminski University

Piotr Mielus

Warsaw School of Economics (SGH)

Karolina Puławska

Kozminski University

Malgorzata Snarska

Cracow University of Economics

Date Written: May 7, 2018

Abstract

The crisis has shown that a drop in liquidity, as well as the shortened maturity of interbank transactions, has caused many problems for banks. We analyze how the introduction of a bank levy on bank assets in Poland has affected the interbank market, as well as money market pricing. Analyzing daily volume and number of interbank transactions, along with daily bank quotes, we document that the bank levy has significantly reduced trading intensity on the market, shortening the maturity of transactions. We also find that it has increased the dispersion of bank quotes for short-term transactions, while at the same time “killing” interbank long-term transactions, including the pricing for this market. The regulators should re-think the nature of bank levies in several countries, as they negatively affect the functioning of the interbank market and brings into question the credibility of interbank benchmarks.

Keywords: bank levy, interbank market, liquidity, money market, interbank rate, frictions

JEL Classification: C32, G28, E43, C54

Suggested Citation

Hryckiewicz, Aneta and Mielus, Piotr and Puławska, Karolina and Snarska, Malgorzata, Does a Bank Levy Increase Frictions on the Interbank Market? (May 7, 2018). Available at SSRN: https://ssrn.com/abstract=3174916 or http://dx.doi.org/10.2139/ssrn.3174916

Aneta Hryckiewicz (Contact Author)

Goethe University of Frankfurt ( email )

House of Finance, Grüneburgplatz 1
Frankfurt am Main, DE Hessen 60323
Germany

Kozminski University ( email )

Accounting Department
ul. Jagiellonska 57/59
Warsaw, 03-303
Poland
(22) 519 21 69 (Phone)

Piotr Mielus

Warsaw School of Economics (SGH) ( email )

aleja Niepodleglosci 162
PL-Warsaw, 02-554
Poland

Karolina Puławska

Kozminski University ( email )

ul. JagielloDska 57/59
Warsaw, 03-303
Poland

Malgorzata Snarska

Cracow University of Economics ( email )

ul. Rakowicka 27
Krakow, 31-510
Poland

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