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Liquidity matters : evidence from the Russian interbank market

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  • Karas, Alexei
  • Schoors, Koen
  • Lanine, Gleb

Abstract

We suggest an additional transmission channel of contagion on the interbank market - the liquidity channel. Examining the Russian banking sector, we and that the liquidity channel contributes significantly to understanding and predicting interbank market crises. Interbank market stability Granger causes the interbank market structure, while the opposite causality is rejected. This bolsters the view that the interbank market structure is endogenous. The results corroborate the thesis that prudential regulation at the individual bank level is insufficient to prevent systemic crises. We demonstrate that liquidity injections of a classical lender of last resort can effectively mitigate coordination failures on the interbank market both in theory and practice. Apparently, liquidity does matter.

Suggested Citation

  • Karas, Alexei & Schoors, Koen & Lanine, Gleb, 2008. "Liquidity matters : evidence from the Russian interbank market," BOFIT Discussion Papers 19/2008, Bank of Finland, Institute for Economies in Transition.
  • Handle: RePEc:bof:bofitp:2008_019
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    Cited by:

    1. Elahi, M.A., 2011. "Essays on financial fragility," Other publications TiSEM 882f55bb-10dc-4e49-95ef-e, Tilburg University, School of Economics and Management.
    2. Degryse, H.A. & Elahi, M.A. & Penas, M.F., 2012. "Determinants of Banking System Fragility : A Regional Perspective," Discussion Paper 2012-015, Tilburg University, Center for Economic Research.
    3. Grzegorz Hałaj & Christoffer Kok, 2013. "Assessing interbank contagion using simulated networks," Computational Management Science, Springer, vol. 10(2), pages 157-186, June.
    4. Jarko Fidrmuc & Philipp J. Süss, 2011. "The Outbreak of the Russian Banking Crisis," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 5(1), pages 046-063, March.
    5. Andrievskaya, Irina & Semenova, Maria, 2013. "Market discipline and the Russian interbank market," BOFIT Discussion Papers 29/2013, Bank of Finland, Institute for Economies in Transition.
    6. repec:mes:eaeuec:v:53:y:2015:i:2:p:69-98 is not listed on IDEAS
    7. Leonidov, A. & Rumyantsev, E., 2013. "Russian Interbank Systemic Risks Assessment from the Network Topology Point of View," Journal of the New Economic Association, New Economic Association, vol. 19(3), pages 65-80.
    8. Alexander Karminsky, 2016. "Rating models: emerging market distinctions," Papers 1607.02422, arXiv.org.
    9. Pawe{l} Smaga & Mateusz Wili'nski & Piotr Ochnicki & Piotr Arendarski & Tomasz Gubiec, 2016. "Can banks default overnight? Modeling endogenous contagion on O/N interbank market," Papers 1603.05142, arXiv.org.
    10. Fungachova, Z. & Solanko, L., 2010. "Has Banks’ Financial Intermediation Improved in Russia?," Journal of the New Economic Association, New Economic Association, issue 8, pages 101-116.
    11. Andrievskaya & Semenova, 2015. "Market Discipline in the Interbank Market: Evidence from Russia," Eastern European Economics, Taylor & Francis Journals, vol. 53(2), pages 69-98, March.

    More about this item

    JEL classification:

    • C8 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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