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Decomposing Loan Rate Dispersion in the Interbank Market

Author

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  • Masayuki Okada

    (Institute for Monetary and Economic Studies, Bank of Japan (E-mail: masayuki.okada@boj.or.jp))

Abstract

This paper decomposes loan rate dispersion in the interbank loan market. Using transaction-level data, we documented dispersion in uncollateralized overnight loan rates even during periods of low interest rates in Japan. Applying the AKM model, we quantified the contributions of borrower and lender heterogeneity to loan rate dispersion. Lender heterogeneity accounted for approximately three times more dispersion than borrower heterogeneity. The contribution of borrower heterogeneity exhibited a downward trend over time. Positive assortative matching along borrowers' and lenders' average loan rates was observed. For term loans, borrower heterogeneity accounted for a larger share of loan rate dispersion than did overnight loans.

Suggested Citation

  • Masayuki Okada, 2026. "Decomposing Loan Rate Dispersion in the Interbank Market," IMES Discussion Paper Series 26-E-04, Institute for Monetary and Economic Studies, Bank of Japan.
    • Handle: RePEc:ime:imedps:26-e-04
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Systems; Standards; Regimes; Government and the Monetary System
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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