The pricing of bank lending and borrowing: evidence from the federal funds market
This paper examines the terms of bank lending and borrowing by exploring pricing in the federal funds market, the market in which financial institutions trade overnight reserves. By exploiting a never-before-used dataset containing detailed information on every Fedwire transfer between financial institutions, interest rates actually paid by institutions in the funds market are calculated. The size of the trading institutions and their relative importance in the funds market are shown to affect the rates charged for overnight borrowing, thereby providing insight into the nature of competition in the federal funds market. Proxies for creditworthiness are also used to estimate the size and nature of very-short-horizon risk premia. Transaction volume and size-of-transaction effects are also explored, highlighting the role of liquidity in interest rate determination. Evidence of relationship banking among banks and an intraday credit market is also found.
|Date of creation:||Mar 1999|
|Date of revision:|
|Contact details of provider:|| Postal: Centralbahnplatz 2, CH - 4002 Basel|
Phone: (41) 61 - 280 80 80
Fax: (41) 61 - 280 91 00
Web page: http://www.bis.org/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Cooperman, Elizabeth S & Lee, Winson B & Lesage, James P, 1991. "Geographical Integration and the Retail CD-Pricing Decisions of Large Depository Institutions," The Review of Economics and Statistics, MIT Press, vol. 73(3), pages 546-52, August.
- Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
- Glenn D. Rudebusch, 1995.
"Federal Reserve interest rate targeting, rational expectations, and the term structure,"
Working Papers in Applied Economic Theory
95-02, Federal Reserve Bank of San Francisco.
- Rudebusch, Glenn D., 1995. "Federal Reserve interest rate targeting, rational expectations, and the term structure," Journal of Monetary Economics, Elsevier, vol. 35(2), pages 245-274, April.
- Duca, John V & Rosenthal, Stuart S, 1994. "Do Mortgage Rates Vary Based on Household Default Characteristics? Evidence on Rate Sorting and Credit Rationing," The Journal of Real Estate Finance and Economics, Springer, vol. 8(2), pages 99-113, March.
- Mitchell A. Petersen & Raghuram G. Rajan, 1994.
"The Effect of Credit Market Competition on Lending Relationships,"
NBER Working Papers
4921, National Bureau of Economic Research, Inc.
- Mitchell A. Petersen & Raghuram G. Rajan, 1995. "The Effect of Credit Market Competition on Lending Relationships," The Quarterly Journal of Economics, Oxford University Press, vol. 110(2), pages 407-443.
- Bollerslev, Tim & Domowitz, Ian & Wang, Jianxin, 1997. "Order flow and the bid-ask spread: An empirical probability model of screen-based trading," Journal of Economic Dynamics and Control, Elsevier, vol. 21(8-9), pages 1471-1491, June.
- Arnoud Boot & Anjan V. Thakor & Gregory F. Udell, 2004.
"Competition, Risk Neutrality and Loan Commitments,"
- Huang, Roger D & Masulis, Ronald W, 1999. "FX Spreads and Dealer Competition across the 24-Hour Trading Day," Review of Financial Studies, Society for Financial Studies, vol. 12(1), pages 61-93.
When requesting a correction, please mention this item's handle: RePEc:bis:biswps:62. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Beslmeisl)
If references are entirely missing, you can add them using this form.