Combining liquidity usage and interest rates on overnight loans: an oversight indicator
This study utilises payment system data to analyse market participants’ liquidity usage and to trace interest rates paid on overnight loans. Our aim is to examine how liquidity usage has changed during the years 2006–2/2011 and to combine this information with data on overnight lending rates between market participants. It turns out that the Furfine algorithm used in the analysis produces overnight interest rates that correlate very closely with the EONIA curve. Based on Finnish payment system data, we identify four separate time periods: normal, start of turmoil, acute crisis and stabilizing period. The results show that, during the acute crisis period, TARGET2 participants holding an account with the Bank of Finland paid, on average, lower overnight interest rates than other banks in the euro area. However, the results reveal there has been some lack of confidence between Finnish participants since the onset of the financial crisis. A new indicator – the Grid – which we present here shows this very clearly. We suggest that this new indicator could be a highly useful tool for overseers in supporting financial stability analysis.
|Date of creation:||11 Nov 2011|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.suomenpankki.fi/en/
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.:
- Q. Farooq Akram & Casper Christophersen, 2010. "Interbank overnight interest rates - gains from systemic importance," Working Paper 2010/11, Norges Bank.
- Ronald Heijmans & Richard Heuver, 2011. "Is this bank ill? The diagnosis of doctor TARGET2," DNB Working Papers 316, Netherlands Central Bank, Research Department.
- Demiralp, Selva & Preslopsky, Brian & Whitesell, William, 2006.
"Overnight interbank loan markets,"
Journal of Economics and Business,
Elsevier, vol. 58(1), pages 67-83.
When requesting a correction, please mention this item's handle: RePEc:hhs:bofrdp:2011_023. 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: (Minna Nyman)
If references are entirely missing, you can add them using this form.