Stressed, Not Frozen: The Federal Funds Market in the Financial Crisis

Afonso, Gara; Kovner, Anna; Schoar, Antoinette

doi:10.1111/j.1540-6261.2011.01670.x

Cited by 434 publications

(302 citation statements)

References 28 publications

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“…For the amount borrowed we find no evidence for a significant reduction in interbank borrowing unless we introduce borrower fixed effects and even then only after the ECB conducted the special refinancing operation. In fact, for the period immediately after the Lehman insolvency, we find an increase in the amount banks borrow on the interbank market which confirms the results of Afonso et al (2011) who show that the fed funds market in the United States was "stressed, but not frozen". We find that on Monday, 15 September banks pay on average 0.15 basis points more for liquidity than in the reference period.…”

supporting

confidence: 79%

A Network View on Interbank Market Freezes

Gabrieli

Georg

2014

SSRN Journal

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We study the liquidity allocation among European banks around the Lehman insolvency using a novel dataset of all interbank loans settled via the Eurosystem's payment system TARGET2. Following the Lehman insolvency, lenders in the overnight segment become sensitive to counterparty characteristics and banks start hoarding liquidity by shortening the maturity of their interbank lending. This aggregate change in liquidity reallocation is accompanied by a substantial structural change that can best be characterized as a shrinking of the interbank network. Such a change in the network structure is consequential: banks with higher centrality within the network have better access to liquidity and are able to charge larger intermediation spreads. Therefore, we show the existence of a sizeable interbank lending channel.

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supporting

confidence: 79%

A Network View on Interbank Market Freezes

Gabrieli

Georg

2014

SSRN Journal

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“…If a particular bank can always interact with the same counterparty to smooth out liquidity shock, it avoids costly counterparty search in a decentralized market but relies on the insurance mechanism of the relationship. This argument is also given by Cocco et al (2009) and Afonso et al (2011) who find that borrowers with higher liquidity shocks rely more on relationships to access liquidity and trade generally at more favorable prices.…”

Section: Related Literaturementioning

confidence: 77%

Relationship Lending in the Interbank Market and the Price of Liquidity

Bräuning

Fecht

2016

Review of Finance

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This paper empirically investigates the effect of interbank relationship lending on banks' access to liquidity. Our analysis is based on German interbank payment data which we use to create a panel of unsecured overnight loans between 1079 distinct borrower-lender pairs. The data shows that banks rely on repeated interactions with the same counterparties to trade liquidity. For the price of liquidity, we find that in the run-up to the recent financial crisis of 2007/08 relationship lenders charged already higher interest rates to their borrowers after controlling for other bank specific characteristics and general market conditions. By contrast, during the crisis borrowers paid on average lower rates to their relationship lenders compared to spot lenders. The observed interest rate differences are statistically and economically significant and in line with theory that relationship lenders have private information about the creditworthiness of their close borrowers.

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“…1 See Afonso, Kovner, and Schoar (2011), Afonso (2012), Ashcraft, McAndrews, and Skeie (2011), Ashcraft and Bleakley (2006), Ashcraft and Duffie (2007), Acharya and Merrouche (2010), Bartolini, Hilton and McAndrews (2010), McAndrews (2009), Bech and Atalay (2008), Bech and Klee (2009), and Allen, Chapmanz, Echenique, and Shum (2012) 2 One exception to this is the e-MID (electronic market for interbank deposits) active in Italy. See Angelini et al (2009) for more information.…”

Section: Introductionmentioning

confidence: 99%

Evaluating the Quality of Fed Funds Lending Estimates Produced from Fedwire Payments Data

Kovner

Skeie

2013

SSRN Journal

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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. Terms of use: Documents in AbstractA number of empirical analyses of interbank lending rely on indirect inferences from individual interbank transactions extracted from payments data using algorithms. In this paper, we conduct an evaluation to assess the ability of identifying overnight U.S. fed funds activity from Fedwire® payments data. We find evidence that the estimates extracted from the data are statistically significantly correlated with banks' fed funds borrowing as reported on the FRY-9C. We find similar associations for fed funds lending, although the correlations are lower. To be conservative, we believe that the estimates are best interpreted as measures of overnight interbank activity rather than fed funds activity specifically. We also compare the estimates provided by Armantier and Copeland (2012) to the Y-9C fed funds amounts.

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Stressed, Not Frozen: The Federal Funds Market in the Financial Crisis

Cited by 434 publications

References 28 publications

A Network View on Interbank Market Freezes

A Network View on Interbank Market Freezes

Relationship Lending in the Interbank Market and the Price of Liquidity

Evaluating the Quality of Fed Funds Lending Estimates Produced from Fedwire Payments Data

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