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The interbank market after August 2007: what has changed, and why?

Author

Listed:
  • Paolo Angelini

    () (Bank of Italy)

  • Andrea Nobili

    () (Bank of Italy)

  • Maria Cristina Picillo

    () (Bank of Italy)

Abstract

The outbreak of the financial crisis coincided with a sharp increase of worldwide interbank interest rates. We analyze the micro and macroeconomic determinants of this phenomenon, finding that before August 2007 interbank rates were insensitive to borrower characteristics, whereas afterwards they became reactive to borrowers� creditworthiness. At the same time, conditions for large borrowers became relatively more favorable, both before and after the failure of Lehman Brothers. This suggests that banks have become more discerning in their lending, a welcome change, but that moral hazard considerations related to the �too big to fail� argument should remain a main concern for central banks.

Suggested Citation

  • Paolo Angelini & Andrea Nobili & Maria Cristina Picillo, 2009. "The interbank market after August 2007: what has changed, and why?," Temi di discussione (Economic working papers) 731, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:wptemi:td_731_09
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    References listed on IDEAS

    as
    1. Heiko Hesse & Nathaniel Frank & Brenda Gonzalez-Hermosillo, 2008. "Transmission of Liquidity Shocks; Evidence from the 2007 Subprime Crisis," IMF Working Papers 08/200, International Monetary Fund.
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    Keywords

    Interbank markets; Spreads; Financial crisis;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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