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Identifying term interbank loans from Fedwire payments data

Listed author(s):
  • Kuo, Dennis

    ()

    (University of California at Los Angeles)

  • Skeie, David R.

    (Texas A&M University)

  • Vickery, James

    (Federal Reserve Bank of New York)

  • Youle, Thomas

    ()

    (University of Minnesota)

Interbank markets for term maturities experienced great stress during the 2007-09 financial crisis, as illustrated by the behavior of the one- and three-month Libor. Despite widespread interest in these markets, little data is available on dollar interbank lending for maturities beyond overnight. We develop a methodology to infer information about individual term dollar interbank loans settled through the Fedwire® Funds Service, the large-value bank payment system operated by the Federal Reserve Banks. We find a sharp increase in the dispersion of inferred term interbank interest rates, a shortening of loan maturities, and a decline in term lending volume following the failure of Lehman Brothers in September 2008. Several diagnostic tests suggest that our approach provides a useful source of information about the term interbank market, allowing for a number of research applications.

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Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 603.

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Length: 49 pages
Date of creation: 2013
Date of revision: 01 Aug 2014
Handle: RePEc:fip:fednsr:603
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  1. Wetherilt, Anne & Zimmerman, Peter & Soramaki, Kimmo, 2010. "The sterling unsecured loan market during 2006-08: insights from network theory," Bank of England working papers 398, Bank of England.
  2. Todd Keister & James J. McAndrews, 2009. "Why are banks holding so many excess reserves?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 15(Dec).
  3. Acharya, Viral V. & Skeie, David, 2011. "A model of liquidity hoarding and term premia in inter-bank markets," Journal of Monetary Economics, Elsevier, vol. 58(5), pages 436-447.
  4. Darrell Duffie & David R. Skeie & James Vickery, 2013. "A sampling-window approach to transactions-based Libor fixing," Staff Reports 596, Federal Reserve Bank of New York.
  5. F.R. Liedorp & L. Medema & M. Koetter & R.H. Koning & I. van Lelyveld, 2010. "Peer monitoring or contagion? Interbank market exposure and bank risk," DNB Working Papers 248, Netherlands Central Bank, Research Department.
  6. Q. Farooq Akram & Casper Christophersen, 2010. "Interbank overnight interest rates - gains from systemic importance," Working Paper 2010/11, Norges Bank.
  7. Acharya, Viral V. & Schnabl, Philipp & Suarez, Gustavo, 2013. "Securitization without risk transfer," Journal of Financial Economics, Elsevier, vol. 107(3), pages 515-536.
  8. Craig, Ben & von Peter, Goetz, 2014. "Interbank tiering and money center banks," Journal of Financial Intermediation, Elsevier, vol. 23(3), pages 322-347.
  9. Gara Afonso & Anna Kovner & Antoinette Schoar, 2011. "Stressed, Not Frozen: The Federal Funds Market in the Financial Crisis," Journal of Finance, American Finance Association, vol. 66(4), pages 1109-1139, 08.
  10. Olivier Armantier & Adam Copeland, 2012. "Assessing the quality of “Furfine-based” algorithms," Staff Reports 575, Federal Reserve Bank of New York.
  11. Adam Copeland & Antoine Martin & Michael Walker, 2010. "The tri-party repo market before the 2010 reforms," Staff Reports 477, Federal Reserve Bank of New York.
  12. Ronald Heijmans & Richard Heuver & Daniëlle Walraven, 2011. "Monitoring the unsecured interbank money market using TARGET2 data," DNB Working Papers 276, Netherlands Central Bank, Research Department.
  13. Bech, Morten L. & Klee, Elizabeth, 2011. "The mechanics of a graceful exit: Interest on reserves and segmentation in the federal funds market," Journal of Monetary Economics, Elsevier, vol. 58(5), pages 415-431.
  14. Paolo Angelini & Andrea Nobili & Cristina Picillo, 2011. "The Interbank Market after August 2007: What Has Changed, and Why?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(5), pages 923-958, 08.
  15. Furfine, Craig H, 2001. "Banks as Monitors of Other Banks: Evidence from the Overnight Federal Funds Market," The Journal of Business, University of Chicago Press, vol. 74(1), pages 33-57, January.
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