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What drives interbank loans? Evidence from Canada

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  • Bulusu, Narayan
  • Guérin, Pierre

Abstract

We find that collateral reallocation costs are a significant driver of the dynamics of overnight interbank loans. The cost of negotiating and settling collateralized over-the-counter trades incentivizes the temporary use of unsecured loans to meet changes in short-term liquidity needs, as well as greater uptake of central bank overnight lending facilities. This friction also leads to repos adjusting gradually in response to persistent changes in liquidity demand.

Suggested Citation

  • Bulusu, Narayan & Guérin, Pierre, 2019. "What drives interbank loans? Evidence from Canada," Journal of Banking & Finance, Elsevier, vol. 106(C), pages 427-444.
  • Handle: RePEc:eee:jbfina:v:106:y:2019:i:c:p:427-444
    DOI: 10.1016/j.jbankfin.2019.07.016
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    More about this item

    Keywords

    Interbank lending; Funding liquidity; Repurchase agreements (repos); Collateral management;

    JEL classification:

    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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