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Can the U.S. Interbank Market Be Revived?

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  • KYUNGMIN KIM
  • ANTOINE MARTIN
  • ED NOSAL

Abstract

The U.S. interbank market essentially disappeared as the reserve supply dramatically increased after the 2007–2008 crisis. We build a model to study whether the interbank market can revive if the reserve supply decreases sufficiently. The market may not revive due to balance sheet costs associated with recent banking regulations. Although interbank volume may initially increase as reserves decline from abundant levels, the balance sheet costs may engender changes in market structure that completely replace interbank trading by nonbank lending to banks. This nonmonotonic response could lead to misleading forecasts about future interbank volumes.

Suggested Citation

  • Kyungmin Kim & Antoine Martin & Ed Nosal, 2020. "Can the U.S. Interbank Market Be Revived?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(7), pages 1645-1689, October.
  • Handle: RePEc:wly:jmoncb:v:52:y:2020:i:7:p:1645-1689
    DOI: 10.1111/jmcb.12693
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    References listed on IDEAS

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