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Central bank refinancing, interbank markets, and the hypothesis of liquidity hoarding: evidence from a euro-area banking system

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  • Massimiliano Affinito

    () (Bank of Italy)

Abstract

This paper tests the hypothesis of liquidity hoarding in the Italian banking system during the 2007-2011 global financial crisis. According to this hypothesis, in periods of crisis, interbank markets stop working and central banks� interventions are ineffective because banks hoard the liquidity injected rather than channelling it on to other banks and the real economy. The test uses monthly data at banking-group level for all intermediaries operating in Italy between January 1999 and August 2011. This is the first paper to use micro data to analyse the relationship between single banks� positions vis-�-vis the central bank and the interbank market. The results show that the Italian interbank market functioned well even during the crisis, and, contrary to widespread conjecture, the liquidity injected by the Eurosystem was intermediated among banks and towards the real economy. This finding is robust to the use of several estimation methods and data on the different segments of the money market.

Suggested Citation

  • Massimiliano Affinito, 2013. "Central bank refinancing, interbank markets, and the hypothesis of liquidity hoarding: evidence from a euro-area banking system," Temi di discussione (Economic working papers) 928, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:wptemi:td_928_13
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    Cited by:

    1. Jef Boeckx & Maarten Dossche & Gert Peersman, 2017. "Effectiveness and Transmission of the ECB's Balance Sheet Policies," International Journal of Central Banking, International Journal of Central Banking, vol. 13(1), pages 297-333, February.
    2. repec:bis:bisifc:46-27 is not listed on IDEAS
    3. Lorenzo Burlon & Davide Fantino & Andrea Nobili & Gabriele Sene, 2016. "The quantity of corporate credit rationing with matched bank-firm data," Temi di discussione (Economic working papers) 1058, Bank of Italy, Economic Research and International Relations Area.
    4. repec:eee:jbfina:v:80:y:2017:i:c:p:90-107 is not listed on IDEAS
    5. Affinito, Massimiliano & Franco Pozzolo, Alberto, 2017. "The interbank network across the global financial crisis: Evidence from Italy," Journal of Banking & Finance, Elsevier, vol. 80(C), pages 90-107.

    More about this item

    Keywords

    liquidity; financial crisis; central bank refinancing; interbank market;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General

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