Sidedness and the Urgency to Borrow in the Interbank Market

42 Pages Posted: 12 May 2020 Last revised: 9 Mar 2021

See all articles by Celso Brunetti

Celso Brunetti

Board of Governors of the Federal Reserve System

Jeffrey H. Harris

American University - Department of Finance and Real Estate

Shawn Mankad

Cornell University

Date Written: March 8, 2021

Abstract

We study the motivations of traders in the interbank market around the 2007-09 subprime crisis. We develop a new methodology that reveals the underlying urgency to borrow overnight funds, which we call Trading Urgency. We find that the dispersion of beliefs (market Sidedness) and Trading Urgency reveal information from the interbank market—these statistics both 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 as well as 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

Brunetti, Celso and Harris, Jeffrey H. and Mankad, Shawn, Sidedness and the Urgency to Borrow in the Interbank Market (March 8, 2021). Available at SSRN: https://ssrn.com/abstract=3578858 or http://dx.doi.org/10.2139/ssrn.3578858

Celso Brunetti

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Jeffrey H. Harris

American University - Department of Finance and Real Estate ( email )

Kogod School of Business
4400 Massachusetts Ave., N.W.
Washington, DC 20016-8044
United States
202-885-6669 (Phone)

Shawn Mankad (Contact Author)

Cornell University ( email )

Ithaca, NY 14853
United States
6072559594 (Phone)

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