The Urgency to Borrow in the Interbank Market
48 Pages Posted: 12 May 2020
Date Written: April 17, 2020
We study the motivations of traders in the interbank market around the 2007-09 subprime crisis. We develop a new methodology that measures the funding liquidity needs of banks and reveals the underlying urgency to trading. We find that the dispersion of beliefs and urgency to borrow lead sovereign CDS spreads and react to non-standard central bank interventions introduced during the crisis. Our results map the linkages between the interbank market and sovereigns and shed light on the channels that give rise to the sovereign-bank nexus.
Keywords: Sidedness, Liquidity, Credit Default Swaps
JEL Classification: G21, C10, G10
Suggested Citation: Suggested Citation