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The Eurosystem money market auctions: a banking perspective

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  • Ben Craig
  • Falko Fecht

Abstract

This paper analyzes the individual bidding behavior of German banks in the money market auctions conducted by the ECB from the beginning of the third quarter of 2000 to the end of the first quarter of 2001. Our approach takes a variety of characteristics of the individual banks into account. In particular, we consider variables that capture the different use of liquidity and the different attitude towards liquidity risk of the individual banks. It turns out that these characteristics are reflected in the banks’ respective bidding behavior to a large extent. Thus our study contributes to a deeper understanding of the way liquidity risk is managed in the banking sector.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 0506.

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Date of creation: 2006
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Handle: RePEc:fip:fedcwp:0506

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Keywords: Banks and banking; Central ; Bank liquidity ; European Central Bank ; Interbank market;

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References

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  1. Bindseil, Ulrich & Nyborg, Kjell G. & Strebulaev, Ilya A., 2005. "Bidding and Performance in Repo Auctions: Evidence from ECB Open Market Operations," Discussion Papers 2005/13, Department of Business and Management Science, Norwegian School of Economics.
  2. James J. Heckman, 1976. "The Common Structure of Statistical Models of Truncation, Sample Selection and Limited Dependent Variables and a Simple Estimator for Such Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 5, number 4, pages 475-492 National Bureau of Economic Research, Inc.
  3. Ulrich Bindseil & Benedict Weller & Flemming Wuertz, 2003. "Central Bank and Commercial Banks' Liquidity Management - What is the Relationship?," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 32(1), pages 37-66, 02.
  4. Anil K. Kashyap & Raghuram Rajan & Jeremy C. Stein, 2002. "Banks as Liquidity Providers: An Explanation for the Coexistence of Lending and Deposit-Taking," Journal of Finance, American Finance Association, vol. 57(1), pages 33-73, 02.
  5. Koetter, M. & Bos, J.W.B. & Heid, F. & Kolari, J.W. & Kool, C.J.M. & Porath, D., 2007. "Accounting for distress in bank mergers," Journal of Banking & Finance, Elsevier, vol. 31(10), pages 3200-3217, October.
  6. Falko Fecht & Kevin X.D. Huang & Antoine Martin, 2007. "Financial Intermediaries, Markets, and Growth," Vanderbilt University Department of Economics Working Papers 0714, Vanderbilt University Department of Economics.
  7. Upper, Christian & Worms, Andreas, 2002. "Estimating Bilateral Exposures in the German Interbank Market: Is there a Danger of Contagion?," Discussion Paper Series 1: Economic Studies 2002,09, Deutsche Bundesbank, Research Centre.
  8. Hamerle, Alfred & Liebig, Thilo & Scheule, Harald, 2004. "Forecasting Credit Portfolio Risk," Discussion Paper Series 2: Banking and Financial Studies 2004,01, Deutsche Bundesbank, Research Centre.
  9. Puhani, Patrick A, 2000. " The Heckman Correction for Sample Selection and Its Critique," Journal of Economic Surveys, Wiley Blackwell, vol. 14(1), pages 53-68, February.
  10. Tobias Linzert & Dieter Nautz & Jorg Breitung, 2004. "Bidder behaviour in repo auctions without minimum bid rate: evidence from the Bundesbank," Money Macro and Finance (MMF) Research Group Conference 2003 55, Money Macro and Finance Research Group.
  11. Furfine, Craig H., 2000. "Interbank payments and the daily federal funds rate," Journal of Monetary Economics, Elsevier, vol. 46(2), pages 535-553, October.
  12. Linzert, Tobias & Nautz, Dieter & Breitung, Jorg, 2006. "Bidder behavior in central bank repo auctions: Evidence from the Bundesbank," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 16(3), pages 215-230, July.
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Citations

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Cited by:
  1. Falko Fecht & Kjell G. Nyborg & Jörg Rocholl, 2009. "The Price of Liquidity: Bank Characteristics and Market Conditions," CESifo Working Paper Series 2576, CESifo Group Munich.
  2. Ewerhart, Christian & Cassola, Nuno & Valla, Natacha, 2010. "Declining valuations and equilibrium bidding in central bank refinancing operations," International Journal of Industrial Organization, Elsevier, vol. 28(1), pages 30-43, January.
  3. Fecht, Falko & Nyborg, Kjell G. & Rocholl, Jörg, 2011. "The price of liquidity: The effects of market conditions and bank characteristics," Journal of Financial Economics, Elsevier, vol. 102(2), pages 344-362.
  4. Fecht, Falko & Nyborg, Kjell G. & Rocholl, Jörg, 2008. "Liquidity management and overnight rate calendar effects: Evidence from German banks," The North American Journal of Economics and Finance, Elsevier, vol. 19(1), pages 7-21, March.
  5. Massimiliano Affinito, 2013. "Central bank refinancing, interbank markets, and the hypothesis of liquidity hoarding: evidence from a euro-area banking system," Temi di discussione (Economic working papers) 928, Bank of Italy, Economic Research and International Relations Area.
  6. Eisenschmidt, Jens & Hirsch, Astrid & Linzert, Tobias, 2009. "Bidding behaviour in the ECB’s main refinancing operations during the financial crisis," Working Paper Series 1052, European Central Bank.
  7. Craig, Ben R. & Fecht, Falko & Tümer-Alkan, Günseli, 2013. "The role of interbank relationships and liquidity needs," Discussion Papers 54/2013, Deutsche Bundesbank, Research Centre.
  8. Affinito, Massimiliano, 2013. "Central bank refinancing, interbank markets and the hypothesis of liquidity hoarding: evidence from a euro-area banking system," Working Paper Series 1607, European Central Bank.
  9. Abbassi, Puriya & Fecht, Falko & Weber, Patrick, 2013. "How stressed are banks in the interbank market?," Discussion Papers 40/2013, Deutsche Bundesbank, Research Centre.

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