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The effect of monetary policy interventions on interbank markets, equity indices and G-SIFIs during financial crisis

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  • Fiordelisi, Franco
  • Galloppo, Giuseppe
  • Ricci, Ornella

Abstract

Since 2007, monetary authorities around the globe have reduced their key policy interest rates to unprecedented low levels and intervened with non-standard policy measures (i.e., monetary easing and liquidity provision) to support funding conditions for banks, enhance lending to the private sector and contain contagion in financial markets (e.g., European Central Bank, 2011). Using a detailed dataset of monetary policy interventions between June 2007 and June 2012 in the most advanced monetary areas (the Euro area, Japan, the U.S., the UK and Switzerland), we analyze their effects at three different levels, including (1) the interbank credit market, considering the 3-month LIBOR-OIS spread as a measure of financial distress (e.g., Taylor and Williams, 2009); (2) the stock market, represented by wide equity indices; and (3) the banking sector, focusing on global systematically important financial institutions (G-SIFIs). We demonstrate that different monetary policy interventions from single central banks have produced a diverse market reaction. Standard measures have been more effective than non-conventional ones in restoring the interbank market, which is fundamental for maintaining a fully operational traditional interest rate channel and for guaranteeing the normal functioning of financial intermediation. Non-traditional measures have registered a stronger stock market reaction with respect to standard interest rate decisions, both in terms of broad equity indices and single prices of large banks.

Suggested Citation

  • Fiordelisi, Franco & Galloppo, Giuseppe & Ricci, Ornella, 2014. "The effect of monetary policy interventions on interbank markets, equity indices and G-SIFIs during financial crisis," Journal of Financial Stability, Elsevier, vol. 11(C), pages 49-61.
  • Handle: RePEc:eee:finsta:v:11:y:2014:i:c:p:49-61
    DOI: 10.1016/j.jfs.2013.12.002
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    5. Brunetti, Celso & Harris, Jeffrey H. & Mankad, Shawn & Michailidis, George, 2019. "Interconnectedness in the interbank market," Journal of Financial Economics, Elsevier, vol. 133(2), pages 520-538.
    6. Salvatore Perdichizzi, 2017. "The impact of ECBs conventional and unconventional monetary policies on European banking indexes returns," DISCE - Working Papers del Dipartimento di Economia e Finanza def059, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    7. Ricci, Ornella, 2015. "The impact of monetary policy announcements on the stock price of large European banks during the financial crisis," Journal of Banking & Finance, Elsevier, vol. 52(C), pages 245-255.
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    16. Cui, Jin & In, Francis & Maharaj, Elizabeth Ann, 2016. "What drives the Libor–OIS spread? Evidence from five major currency Libor–OIS spreads," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 358-375.

    More about this item

    Keywords

    Financial crisis; Policy; Event study; Banking;

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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