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Financial Crises and Risk Premiums in International Interbank Markets


  • Shin-ichi Fukuda

    (Professor, Graduate School of Economics, The University of Tokyo)

  • Mariko Tanaka

    (Research associate, Center for International Research on the Japanese Economy, The University of Tokyo)


In this paper, we analyze how the risk premiums in the Tokyo international interbank markets went through under the financial crisis. First, we briefly look back upon the financial situations under Japan's financial crisis at the end of the 1990s and under the global financial crisis that occurred from the summer of 2007 to 2009. We then examine what happened to the risk premiums in the two crises. We use the interest rates of TIBOR and LIBOR for our analysis. In normal times since the two markets are almost completely integrated, the TIBOR is almost interlocked with the LIBOR regardless of their currency denomination. On the contrary, in the time of the financial crisis, there was a significant gap observed between them. However, the type of gaps that occurred depended largely upon the type of crisis. At the end of the 1990s, the TIBOR surpassed the LIBOR regardless of their currency denomination. On the other hand, under the global financial crisis at the end of the 2000s, the TIBOR fell below the LIBOR in the dollar denomination, but the former still overran the latter in the dollar denomination. The different correlation between the TIBOR and the LIBOR in the yen and the dollar is not explained only by the difference in relative credit risks among financial institutions in the two markets. The regression results show that liquidity risk in addition to credit risk is useful in explaining this apparently paradoxical phenomenon. They also show that the central banks' supply of US dollar liquidity was effective in the global financial crisis. Under increased global liquidity risk, there was an absolute liquidity shortage of US dollar in each market in the global financial crisis. The supply of US dollar liquidity by central banks was a policy measure to alleviate the liquidity shortage in such international financial markets.

Suggested Citation

  • Shin-ichi Fukuda & Mariko Tanaka, 2013. "Financial Crises and Risk Premiums in International Interbank Markets," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 9(1), pages 117-138, January.
  • Handle: RePEc:mof:journl:ppr020f

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    References listed on IDEAS

    1. Peek, Joe & Rosengren, Eric S., 2001. "Determinants of the Japan premium: actions speak louder than words," Journal of International Economics, Elsevier, vol. 53(2), pages 283-305, April.
    2. Aizenman, Joshua & Pasricha, Gurnain Kaur, 2010. "Selective swap arrangements and the global financial crisis: Analysis and interpretation," International Review of Economics & Finance, Elsevier, vol. 19(3), pages 353-365, June.
    3. Baba, Naohiko & Packer, Frank, 2009. "From turmoil to crisis: Dislocations in the FX swap market before and after the failure of Lehman Brothers," Journal of International Money and Finance, Elsevier, vol. 28(8), pages 1350-1374, December.
    4. Shin-Ichi Fukuda & Satoshi Koibuchi, 2006. "The Impacts Of "Shock Therapy" Under A Banking Crisis: Experiences From Three Large Bank Failures In Japan," The Japanese Economic Review, Japanese Economic Association, vol. 57(2), pages 232-256.
    5. Gara Afonso & Anna Kovner & Antoinette Schoar, 2011. "Stressed, Not Frozen: The Federal Funds Market in the Financial Crisis," Journal of Finance, American Finance Association, vol. 66(4), pages 1109-1139, August.
    6. Ito, Takatoshi & Harada, Kimie, 2004. "Credit Derivatives Premium as a New Japan Premium," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(5), pages 965-968, October.
    7. Fukuda, Shin-ichi & Koibuchi, Satoshi, 2007. "The impacts of "shock therapy" on large and small clients: Experiences from two large bank failures in Japan," Pacific-Basin Finance Journal, Elsevier, vol. 15(5), pages 434-451, November.
    8. Covrig, Vicentiu & Low, Buen Sin & Melvin, Michael, 2004. "A Yen is Not a Yen: TIBOR/LIBOR and the Determinants of the Japan Premium," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 39(01), pages 193-208, March.
    9. Fukuda, Shin-ichi, 2012. "Market-specific and currency-specific risk during the global financial crisis: Evidence from the interbank markets in Tokyo and London," Journal of Banking & Finance, Elsevier, vol. 36(12), pages 3185-3196.
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    More about this item


    liquidity risks; short-term financial markets; risk premiums; world financial crisis;

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration


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