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The interbank market after August 2007: what has changed, and why?

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Author Info

  • Paolo Angelini

    ()
    (Bank of Italy)

  • Andrea Nobili

    ()
    (Bank of Italy)

  • Maria Cristina Picillo

    ()
    (Bank of Italy)

Abstract

The outbreak of the financial crisis coincided with a sharp increase of worldwide interbank interest rates. We analyze the micro and macroeconomic determinants of this phenomenon, finding that before August 2007 interbank rates were insensitive to borrower characteristics, whereas afterwards they became reactive to borrowers’ creditworthiness. At the same time, conditions for large borrowers became relatively more favorable, both before and after the failure of Lehman Brothers. This suggests that banks have become more discerning in their lending, a welcome change, but that moral hazard considerations related to the â€too big to fail†argument should remain a main concern for central banks.

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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 731.

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Date of creation: Oct 2009
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Handle: RePEc:bdi:wptemi:td_731_09

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Keywords: Interbank markets; Spreads; Financial crisis;

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  1. Heiko Hesse & Nathaniel Frank & Brenda González-Hermosillo, 2008. "Transmission of Liquidity Shocks," IMF Working Papers 08/200, International Monetary Fund.
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