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What is a prime bank? A Euribor � OIS spread perspective

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  • Marco Taboga

    (Bank of Italy)

Abstract

Since the outbreak of the financial crisis in 2007, the level and volatility of Euribor � OIS differentials have increased significantly. According to the extant literature, this variability is mainly explained by credit and liquidity risk premia. I provide evidence that part of the variability might also be explained by ambiguity in the phrasing of the Euribor survey. Participants in the survey are asked at what rate they believe interbank funds to be exchanged between prime banks; given the lack of a clear definition of the concept of prime bank, this question might leave room for subjective judgment. In particular, I find evidence that some variability of Euribor rates might be explained by changes in the survey participants' perception of what a prime bank is. This adds to the difficulties already encountered by previous studies in exactly identifying and measuring the determinants of Euribor rates. I argue that these difficulties are at odds with the clarity, simplicity and replicability that should be required of a widely utilized financial benchmark.

Suggested Citation

  • Marco Taboga, 2013. "What is a prime bank? A Euribor � OIS spread perspective," Temi di discussione (Economic working papers) 895, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_895_13
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    Cited by:

    1. Pinter, Julien & Boissel, Charles, 2016. "The Eurozone deposit rates’ puzzle: Choosing the right benchmark," Economics Letters, Elsevier, vol. 148(C), pages 33-36.
    2. Geršl, Adam & Lešanovská, Jitka, 2014. "Explaining the Czech interbank market risk premium," Economic Systems, Elsevier, vol. 38(4), pages 536-551.
    3. Accetturo, Antonio & Bugamelli, Matteo & Lamorgese, Andrea R., 2013. "Skill upgrading and exports," Economics Letters, Elsevier, vol. 121(3), pages 417-420.
    4. Ugo Albertazzi & Margherita Bottero, 2013. "The procyclicality of foreign bank lending: evidence from the global financial crisis," Temi di discussione (Economic working papers) 926, Bank of Italy, Economic Research and International Relations Area.
    5. Li, Ming & Sun, Hang & Zong, Jichuan, 2021. "Intertemporal imitation behavior of interbank offered rate submissions," Journal of Banking & Finance, Elsevier, vol. 132(C).
    6. Marcello Pericoli & Marco Taboga, 2022. "Nearly Exact Bayesian Estimation of Non-linear No-Arbitrage Term-Structure Models [Pricing the Term Structure with Linear Regressions]," Journal of Financial Econometrics, Oxford University Press, vol. 20(5), pages 807-838.
    7. Marcello Pericoli & Marco Taboga, 2015. "Understanding policy rates at the zero lower bound: insights from a Bayesian shadow rate model," Temi di discussione (Economic working papers) 1023, Bank of Italy, Economic Research and International Relations Area.
    8. Rainone, Edoardo, 2020. "The network nature of over-the-counter interest rates," Journal of Financial Markets, Elsevier, vol. 47(C).
    9. Marcello Pericoli & Marco Taboga, 2015. "Decomposing euro area sovereign spreads: credit, liquidity and convenience," Temi di discussione (Economic working papers) 1021, Bank of Italy, Economic Research and International Relations Area.

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    More about this item

    Keywords

    Euribor rates; Euribor survey; Euribor � OIS spread;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services

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