Liquidity and credit risks in the UK’s financial crisis
AbstractThis paper investigates the relationship between credit risk and liquidity components in the interbank spread and how this relationship unfolded during the recent financial crisis. We find that prior to the central bank’s Bank of England’s intervention counterpart risk was a major factor in the widening of the spread and also caused a rise in liquidity risk. However, this relationship was reversed after central bank started quantitative easing (QE). Using the accumulated value of asset purchases as a proxy for central bank’s liquidity provisions, we provide evidence that the QE operations were successful in reducing liquidity premia and ultimately, indirectly, credit risk.
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Bibliographic InfoPaper provided by Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol in its series Working Papers with number 20131301.
Date of creation: 01 Jan 2013
Date of revision:
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Web page: http://www1.uwe.ac.uk/bl/research/bristoleconomics.aspx
More information through EDIRC
interbank spreads; liquidity premia; credit risk; quantitative easing; financial crisis;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-10-02 (All new papers)
- NEP-BAN-2013-10-02 (Banking)
- NEP-MON-2013-10-02 (Monetary Economics)
- NEP-PKE-2013-10-02 (Post Keynesian 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.:
- Suzanne Fry & Felix Ritchie, 2012. "Issues in the measurement of low pay: 2010," Working Papers 20121210, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
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