Liquidity matters: Evidence from the Russian interbank market
AbstractWe suggest a new transmission channel of contagion on the interbank market, namely the liquidity channel. We apply this idea to the Russian banking sector and .nd that the liquidity channel contributes signi.cantly to a better understanding and prediction of actual interbank market crises. Interbank market stability Granger causes the interbank market struc- ture, while the opposite causality is rejected. This emboldens the case for viewing the interbank market structure as endogenous. The results corroborate the thesis that prudential regulation at individual bank level is insu¢ cient to prevent systemic crises. We demonstrate that liquidity injections of a classical LOLR can e¤ectively mitigate coordination fail- ures on the interbank market not only in theory, but also in practice. In short: liquidity matters.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Ghent University, Faculty of Economics and Business Administration in its series Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium with number 08/520.
Length: 21 pages
Date of creation: Jun 2008
Date of revision:
interbank market stability; contagion; liquidity channel; lender of last resort; Russia;
Other versions of this item:
- Kares, Alexei & Schoors , Koen & Lanine, Gleb, 2008. "Liquidity matters: Evidence from the Russian interbank market," BOFIT Discussion Papers 19/2008, Bank of Finland, Institute for Economies in Transition.
- C8 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-07-20 (All new papers)
- NEP-BAN-2008-07-20 (Banking)
- NEP-MON-2008-07-20 (Monetary Economics)
- NEP-TRA-2008-07-20 (Transition Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gordy, Michael B., 2002. "Saddlepoint approximation of CreditRisk+," Journal of Banking & Finance, Elsevier, vol. 26(7), pages 1335-1353, July.
- Rodrigo Cifuentes & Hyun Song Shin & Gianluigi Ferrucci, 2005. "Liquidity Risk and Contagion," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 556-566, 04/05.
- Jeannette Müller, 2006. "Interbank Credit Lines as a Channel of Contagion," Journal of Financial Services Research, Springer, vol. 29(1), pages 37-60, February.
- Angelini, P. & Maresca, G. & Russo, D., 1996. "Systemic risk in the netting system," Journal of Banking & Finance, Elsevier, vol. 20(5), pages 853-868, June.
- A. Karas & K. Schoors, 2005. "Heracles or Sisyphus? Finding, cleaning and reconstructing a database of Russian banks," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/327, Ghent University, Faculty of Economics and Business Administration.
- De Bandt, Olivier & Hartmann, Philipp, 2000.
"Systemic risk: A survey,"
Working Paper Series
0035, European Central Bank.
- Iman van Lelyveld & Franka Liedorp, 2004.
"Interbank Contagion in the Dutch Banking Sector,"
DNB Working Papers
005, Netherlands Central Bank, Research Department.
- Martin Summer & Helmut Elsinger & Alfred Lehar, 2002.
"Risk Assessment for Banking Systems,"
79, Oesterreichische Nationalbank (Austrian Central Bank).
- Jean-Charles Rochet & Xavier Vives, 2002.
"Coordination Failures and the Lender of Last Resort: Was Bagehot Right After All?,"
FMG Discussion Papers
dp408, Financial Markets Group.
- Jean-Charles Rochet & Xavier Vives, 2004. "Coordination Failures and the Lender of Last Resort: Was Bagehot Right After All?," Journal of the European Economic Association, MIT Press, vol. 2(6), pages 1116-1147, December.
- Rochet, Jean-Charles & Vives, Xavier, 2004. "Coordination Failures and the Lender of Last Resort : Was Bagehot Right After All?," IDEI Working Papers 294, Institut d'Économie Industrielle (IDEI), Toulouse.
- Rochet, Jean-Charles & Vives, Xavier, 2002. "Coordination failures and the lender of last resort : was Bagehot right after all?," HWWA Discussion Papers 184, Hamburg Institute of International Economics (HWWA).
- Rochet, Jean Charles & Vives, Xavier, 2002. "Coordination Failures and the Lender of Last Resort: Was Bagehot Right After All?," CEPR Discussion Papers 3233, C.E.P.R. Discussion Papers.
- Degryse, H.A. & Nguyen, G., 2006.
"Interbank Exposures: An Empirical Examination of Contagion Risk in the Belgian Banking System,"
2006-016, Tilburg University, Tilburg Law and Economic Center.
- Hans Degryse & Grégory Nguyen, 2007. "Interbank Exposures: An Empirical Examination of Contagion Risk in the Belgian Banking System," International Journal of Central Banking, International Journal of Central Banking, vol. 3(2), pages 123-171, June.
- Anatoly Peresetsky & Alexandr Karminsky & Sergei Golovan, 2011.
"Probability of default models of Russian banks,"
Economic Change and Restructuring,
Springer, vol. 44(4), pages 297-334, November.
- Claessens,Constantijn A. & Klingebiel, Daniela & Laeven, Luc, 2004. "Resolving systemic financial crisis : policies and institutions," Policy Research Working Paper Series 3377, The World Bank.
- Hasan, Iftekhar & Dwyer, Gerald P, Jr, 1994. "Bank Runs in the Free Banking Period," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(2), pages 271-88, May.
- Perotti, Enrico, 2002.
"Lessons from the Russian Meltdown: The Economics of Soft Legal Constraints,"
Wiley Blackwell, vol. 5(3), pages 359-99, Winter.
- Enrico Perotti, 2001. "Lessons from the Russian Meltdown: The Economics of Soft Legal Constraints," William Davidson Institute Working Papers Series 379, William Davidson Institute at the University of Michigan.
- Furfine, Craig H, 2003. " Interbank Exposures: Quantifying the Risk of Contagion," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(1), pages 111-28, February.
- Marvin Goodfriend & Robert G. King, 1988.
"Financial deregulation, monetary policy, and central banking,"
88-01, Federal Reserve Bank of Richmond.
- Marvin Goodfriend & Robert G. King, 1988. "Financial deregulation, monetary policy, and central banking," Economic Review, Federal Reserve Bank of Richmond, issue May, pages 3-22.
- Goodfriend, M. & King, R.G., 1988. "Financial Deregulation, Monetary Policy, And Central Banking," RCER Working Papers 121, University of Rochester - Center for Economic Research (RCER).
- Michael Bordo & Barry Eichengreen & Daniela Klingebiel & Maria Soledad Martinez-Peria, 2001. "Is the crisis problem growing more severe?," Economic Policy, CEPR & CES & MSH, vol. 16(32), pages 51-82, 04.
- 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.
- Slovin, Myron B. & Sushka, Marie E. & Polonchek, John A., 1999. "An analysis of contagion and competitive effects at commercial banks," Journal of Financial Economics, Elsevier, vol. 54(2), pages 197-225, October.
- William Tompson, 2004. "Banking Reform in Russia: Problems and Prospects," OECD Economics Department Working Papers 410, OECD Publishing.
- Honohan, Patrick & Klingebiel, Daniela, 2003. "The fiscal cost implications of an accommodating approach to banking crises," Journal of Banking & Finance, Elsevier, vol. 27(8), pages 1539-1560, August.
- George Sheldon & Martin Maurer, 1998. "Interbank Lending and Systemic Risk: An Empirical Analysis for Switzerland," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 134(IV), pages 685-704, December.
- Boissay, Frédéric, 2006. "Credit chains and the propagation of financial distress," Working Paper Series 0573, European Central Bank.
- Degryse, Hans & Ather Elahi, Muhammad & Penas, María Fabiana, 2012.
"Determinants of banking system fragility: A regional perspective,"
Open Access publications from Katholieke Universiteit Leuven
urn:hdl:123456789/338821, Katholieke Universiteit Leuven.
- Degryse, Hans & Elahi, Muhammad Ather & Penas, Maria Fabiana, 2012. "Determinants of Banking System Fragility: A Regional Perspective," CEPR Discussion Papers 8858, C.E.P.R. Discussion Papers.
- Degryse, H.A. & Elahi, M.A. & Penas, M.F., 2012. "Determinants of Banking System Fragility: A Regional Perspective," Discussion Paper 2012-015, Tilburg University, Center for Economic Research.
- Degryse, Hans & Elahi, Muhammad Ather & Penas, María Fabiana, 2013. "Determinants of banking system fragility: a regional perspective," Working Paper Series 1567, European Central Bank.
- Grzegorz Hałaj & Christoffer Kok, 2013.
"Assessing interbank contagion using simulated networks,"
Computational Management Science,
Springer, vol. 10(2), pages 157-186, June.
- Hałaj, Grzegorz & Kok, Christoffer, 2013. "Assessing interbank contagion using simulated networks," Working Paper Series 1506, European Central Bank.
- Jarko Fidrmuc & Philipp J. Süss, 2011.
"The Outbreak of the Russian Banking Crisis,"
Czech Economic Review,
Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 5(1), pages 046-063, March.
- Fungachova, Z. & Solanko, L., 2010. "Has Banks’ Financial Intermediation Improved in Russia?," Journal of the New Economic Association, New Economic Association, issue 8, pages 101-116.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Nathalie Verhaeghe).
If references are entirely missing, you can add them using this form.