Interbank Rate Uncertainty and Bank Lending

33 Pages Posted: 23 Aug 2019

See all articles by Carlo Altavilla

Carlo Altavilla

European Central Bank (ECB)

Giacomo Carboni

European Central Bank(ECB)

Michele Lenza

European Central Bank (ECB)

Harald Uhlig

University of Chicago - Department of Economics

Date Written: August, 2019

Abstract

This paper investigates the effects of interbank rate uncertainty on lending rates to euro area firms. We introduce a novel measure of interbank rate uncertainty, computed as the cross-sectional dispersion in interbank market rates on overnight unsecured loans. Using proprietary bank-level data, we find that interbank rate uncertainty significantly raises lending rates on loans to firms, with a peak effect of around 100 basis points during the 2007-2009 global financial crisis and the 2010-2012 European sovereign crisis. This effect is attenuated for banks with lower credit risk, sounder capital positions and greater access to central bank funding.

Keywords: bank lending, interbank market, uncertainty

JEL Classification: E44, D80, G21

Suggested Citation

Altavilla, Carlo and Carboni, Giacomo and Lenza, Michele and Uhlig, Harald, Interbank Rate Uncertainty and Bank Lending (August, 2019). ECB Working Paper No. 2311. Available at SSRN: https://ssrn.com/abstract=3441655

Carlo Altavilla (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Giacomo Carboni

European Central Bank(ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Michele Lenza

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Harald Uhlig

University of Chicago - Department of Economics ( email )

1101 East 58th Street
Chicago, IL 60637
United States

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