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Trading partners in the interbank lending market

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  • Gara Afonso
  • Anna Kovner
  • Antoinette Schoar

Abstract

There is substantial heterogeneity in the structure of trading relationships in the U.S. overnight interbank lending market: Some banks rely on spot transactions, while most form stable, concentrated borrowing relationships to hedge liquidity needs. As a result, borrowers pay lower prices and borrow more from their concentrated lenders. Exogenous shocks to liquidity supply (days with low GSE lending) lead to marketwide drops in liquidity and a rise in interest rates. However, borrowers with concentrated lenders are almost completely insulated from the shocks, while liquidity transmission affects the rest of the market via higher interest rates and reduced borrowing volumes.

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Bibliographic Info

Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 620.

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Date of creation: 2013
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Handle: RePEc:fip:fednsr:620

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Related research

Keywords: Interbank market ; Bank liquidity;

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References

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Cited by:
  1. Aleksander Berentsen & Alessandro Marchesiani & Christopher J. Waller, 2013. "Floor systems for implementing monetary policy: Some unpleasant fiscal arithmetic," ECON - Working Papers 121, Department of Economics - University of Zurich, revised Sep 2013.

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