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Interbank overnight interest rates - gains from systemic importance

Author

Listed:
  • Q. Farooq Akram

    (Norges Bank (Central Bank of Norway))

  • Casper Christophersen

    (Norges Bank (Central Bank of Norway))

Abstract

We study overnight interbank interest rates paid by banks in Norway over the period 2006-2009. We observe large variations in interest rates across banks and over time. During the financial crisis, the interest rates are found to be substantially below indicative quotes of interest rates provided by major banks. Our econometric model attributes the interest rate variation partly to differences in banks' characteristics including relative size and connectedness, implying favorable terms for banks of systemic importance. Moreover, interest rates are found to depend not only on overall liquidity in the interbank market, but possibly on its distribution among banks as well, suggesting exploitation of market power by banks with surplus liquidity. There is also evidence of stronger effects on interest rates of systemic importance, credit ratings and liquidity demand and supply since the start of the current financial crisis.

Suggested Citation

  • Q. Farooq Akram & Casper Christophersen, 2010. "Interbank overnight interest rates - gains from systemic importance," Working Paper 2010/11, Norges Bank.
    • Handle: RePEc:bno:worpap:2010_11
    as

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    File URL: https://www.norges-bank.no/en/news-events/news-publications/Papers/Working-Papers/2010/WP-201011/
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Systems; Standards; Regimes; Government and the Monetary System
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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