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Improving Overnight Loan Identification in Payments Systems

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  • Mark Rempel

Abstract

Information on the allocation and pricing of over-the-counter (OTC) markets is scarce. Furfine (1999) pioneered an algorithm that provides transaction-level data on the OTC interbank lending market. The veracity of the data identified, however, is not well established. Using permutation methods, I estimate an upper bound on the daily false positive rate of this algorithm to be slightly above 10%. I propose refinements that reduce the bound below 10% with negligible power loss. The results suggest that the inferred prices and quantities of overnight loans do provide viable estimates of interbank lending market activity.

Suggested Citation

  • Mark Rempel, 2014. "Improving Overnight Loan Identification in Payments Systems," Staff Working Papers 14-25, Bank of Canada.
    • Handle: RePEc:bca:bocawp:14-25
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    References listed on IDEAS

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    1. Viral V. Acharya & Ouarda Merrouche, 2013. "Precautionary Hoarding of Liquidity and Interbank Markets: Evidence from the Subprime Crisis," Review of Finance, European Finance Association, vol. 17(1), pages 107-160.
    2. Olivier Armantier & Adam Copeland, 2012. "Assessing the quality of “Furfine-based” algorithms," Staff Reports 575, Federal Reserve Bank of New York.
    3. Mark Rempel, 2016. "Improving Overnight Loan Identification in Payments Systems," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(2-3), pages 549-564, March.
    4. Dennis Kuo & David R. Skeie & James Vickery & Thomas Youle, 2013. "Identifying term interbank loans from Fedwire payments data," Staff Reports 603, Federal Reserve Bank of New York.
    5. Jason Allen & Ali Hortaçsu & Jakub Kastl, 2011. "Analyzing Default Risk and Liquidity Demand during a Financial Crisis: The Case of Canada," Staff Working Papers 11-17, Bank of Canada.
    6. John D. Storey, 2002. "A direct approach to false discovery rates," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 64(3), pages 479-498, August.
    7. 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.
    8. Lanh Tran & Ba Chu & Chunfeng Huang & Kim P. Huynh, 2014. "Adaptive permutation tests for serial independence," Statistica Neerlandica, Netherlands Society for Statistics and Operations Research, vol. 68(3), pages 183-208, August.
    9. Scott Hendry & Nadja Kamhi, 2009. "Uncollateralized overnight lending in Canada," Applied Financial Economics, Taylor & Francis Journals, vol. 19(11), pages 869-880.
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    Citations

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    Cited by:

    1. Maxim Ralchenko & Adrian Walton, 2022. "Historical Data on Repurchase Agreements from the Canadian Depository for Securities," Technical Reports 121, Bank of Canada.
    2. Mark Rempel, 2016. "Improving Overnight Loan Identification in Payments Systems," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(2-3), pages 549-564, March.
    3. Nellie Zhang, 2015. "Changes in Payment Timing in Canada’s Large Value Transfer System," Staff Working Papers 15-20, Bank of Canada.
    4. Edoardo Rainone, 2017. "Pairwise trading in the money market during the European sovereign debt crisis," Temi di discussione (Economic working papers) 1160, Bank of Italy, Economic Research and International Relations Area.
    5. Nicholas Garvin, 2018. "Identifying Repo Market Microstructure from Securities Transactions Data," RBA Research Discussion Papers rdp2018-09, Reserve Bank of Australia.
    6. Bulusu, Narayan & Guérin, Pierre, 2019. "What drives interbank loans? Evidence from Canada," Journal of Banking & Finance, Elsevier, vol. 106(C), pages 427-444.
    7. Rainone, Edoardo, 2020. "The network nature of over-the-counter interest rates," Journal of Financial Markets, Elsevier, vol. 47(C).
    8. Nellie (Yinan) Zhang, 2019. "Estimating the demand for settlement balances in the Canadian Large Value Transfer System: How much is too much?," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 52(2), pages 735-762, May.
    9. Jason Allen & James Chapman & Federico Echenique & Matthew Shum, 2016. "Efficiency And Bargaining Power In The Interbank Loan Market," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 57(2), pages 691-716, May.
    10. Narayan Bulusu, 2020. "Why Do Central Banks Make Public Announcements of Open Market Operations?," Staff Working Papers 20-35, Bank of Canada.
    11. Müller, Alexander & Paulick, Jan, 2020. ""The devil is in the details, but so is salvation": Different approachesin money market measurement," Discussion Papers 66/2020, Deutsche Bundesbank.

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    More about this item

    Keywords

    Econometric and statistical methods; Financial markets; Interest rates; Payment clearing and settlement systems;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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