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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