Central Bank Refinancing, Interbank Markets, and the Hypothesis of Liquidity Hoarding: Evidence from a Euro-Area Banking System

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The results show that the Italian interbank market functioned well even during the crisis, and, contrary to widespread conjecture, the liquidity injected by the Eurosystem was intermediated among banks and towards the real economy. This finding is robust to the use of several estimation methods and data on the different segments of the money market. The analysis studies the effects of the policy of the Eurosystem on all the banks operating in a major euro-area country, Italy. Italy is a bank-based economy and thus the interbank and bank credit markets are crucial to the financing of the private sector. Moreover, supervisory reporting Terms of use: Documents in EconStor may Massimiliano Affinito JEL Classification

The interbank network across the global financial crisis: Evidence from Italy

“…23 We also estimated the window regressions in the months around the three-year LTROs of December 2011, splitting the sample according to the distribution of each bank's use of the facility. The results show that only banks that made use of the facility increased their relative interconnectedness, and this relationship is independent of the amount of financing from the Eurosystem (Affinito, 2013).…”

“…Another strand of research stresses, therefore, that a certain degree of interconnectedness is functional to the system. The lack of interbank connections and exchanges may be as a great cause of concern as its proliferation Acharya and Merrouche, 2010;Acharya and Skeie, 2011;Afonso et al, 2011;Affinito, 2013). An adequate amount of aggregate liquidity and the conditions for guaranteeing that it can flow through the banking system are widely recognized as essential ingredients for the functioning of the financial system, the smooth implementation of monetary policy, the efficient functioning of payment systems, and the supply of credit to households and firms (Allen and Carletti, 2008;Adrian and Shin, 2009;Brunnermeier, 2009).…”

“…Specifically, the literature that studies the impact of the financial crisis on the functioning of the financial markets and the literature that analyzes the structure of the interbank market using network analysis. The first stream of research emphasizes the risks of a lack of interbank connections and shows that, in many countries, the sharp reduction of lending among banks has been a primary cause of the freezing of large segments of the financial markets, the decreased credit supply, and the subsequent global recession (Allen and Carletti, 2008;Adrian and Shin, 2009;Brunnermeier, 2009;Afonso et al, 2011;Affinito, 2013). The second and growing stream of research uses social network analysis to better understand the structure (or topology) of interbank linkages, with the objective of uncovering the risks caused by excessive interconnectedness (Haldane, 2009;Tumpel-Gugerell, 2009;Caballero, 2010;Yellen, 2013).…”

Norwegian Interbank Market's Response to Changes in Liquidity Policy

“…Allen et al (2009), Affinito (2013, Brunetti et al (2011), Acharya et al (2012) and Gale and Yorulmazer (2013). Our results may therefore be of general interest.…”

Regulating Liquidity Risks within “Institutional Protection Schemes”

“…Without the existence of base money (M-zero does include banknotes in circulation and credit institutions reserves with the central bank, liability-side of the central bank's balance-sheet; OECD, 1971; p. 109) there would be no currency, therefore no liquidity and consequentially no liquidity risk in the financial market (Affinito, 2013;p. 4).…”