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Cited by 2 publications
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Do established relationships in the interbank market help banks mitigating liquidity shortages? Does relationship lending in the interbank market contain banks' costs of liquidity provision? In this paper we try to shed some light on these questions using data on German banks' individual bids in the ECB's main refinancing operations that were held until October 8, 2008 as variable rate tenders, i.e. as pay-your-bid auctions. These auctions are the key source of liquidity for the banking sector in the Euro area as a whole. From an individual bank's perspective, an alternative source of liquidity is the interbank market. Thus the willingness to pay for liquidity by an individual bank in the ECB's auctions is a good indicator for the opportunity cost each bidding bank faces when covering its liquidity needs.We match the bidding data on the individual bank level with various bank characteristics measuring, for example, bank health, size and liquidity status. Most importantly, however, we use data from the German credit register (Millionen-Kredit-Evidenz Statistik) to identify interbank credit relationships. As measures for the intensity of an existing interbank credit relationship of a borrowing bank, we use the largest share of financing provided by a single lender relative to the bank's overall interbank borrowing. To measure the diversification in interbank borrowing we use the number of banks from which an individual financial institution received credit in the previous quarter. As an indirect measure, we employ the interconnectedness of a bank in the money market, where we calculate the centrality of an individual bank in the network of interbank credit relations. This indicator measures how intense a bank is linked to other banks that themselves have many interbank connections. We calculate this measure for both lenders and borrowers. First we assess to what extent an individual bank is lending to many other banks, in particular to those that are themselves central lenders to the rest of the banking system. Second we also derive to what extent a bank is borrowing from many banks that are themselves central borrowers in the interbank market, i.e. borrowing from many other banks.We find that banks that are more dependent on a single lender in the interbank market tend to bid more aggressively, i.e. place higher bids in the auctions, and pay a higher price for liquidity in the auction. Similarly banks that have a multitude of established banking relations, i.e. a higher number of interbank lenders, bid less aggressively and pay a lower price for liquidity in the auctions. Thus, in contrast to the findings in corporate finance, our results suggest that concentration in interbank lending relationships does not help mitigate borrowers' costs of overcoming liquidity shortages. Quite the contrary, having a large portfolio of established lending relationships seems to help banks meeting their liquidity requirements more efficiently. Interestingly, we also find some evidence that a bank that predominantly lends to a mon...
Do established relationships in the interbank market help banks mitigating liquidity shortages? Does relationship lending in the interbank market contain banks' costs of liquidity provision? In this paper we try to shed some light on these questions using data on German banks' individual bids in the ECB's main refinancing operations that were held until October 8, 2008 as variable rate tenders, i.e. as pay-your-bid auctions. These auctions are the key source of liquidity for the banking sector in the Euro area as a whole. From an individual bank's perspective, an alternative source of liquidity is the interbank market. Thus the willingness to pay for liquidity by an individual bank in the ECB's auctions is a good indicator for the opportunity cost each bidding bank faces when covering its liquidity needs.We match the bidding data on the individual bank level with various bank characteristics measuring, for example, bank health, size and liquidity status. Most importantly, however, we use data from the German credit register (Millionen-Kredit-Evidenz Statistik) to identify interbank credit relationships. As measures for the intensity of an existing interbank credit relationship of a borrowing bank, we use the largest share of financing provided by a single lender relative to the bank's overall interbank borrowing. To measure the diversification in interbank borrowing we use the number of banks from which an individual financial institution received credit in the previous quarter. As an indirect measure, we employ the interconnectedness of a bank in the money market, where we calculate the centrality of an individual bank in the network of interbank credit relations. This indicator measures how intense a bank is linked to other banks that themselves have many interbank connections. We calculate this measure for both lenders and borrowers. First we assess to what extent an individual bank is lending to many other banks, in particular to those that are themselves central lenders to the rest of the banking system. Second we also derive to what extent a bank is borrowing from many banks that are themselves central borrowers in the interbank market, i.e. borrowing from many other banks.We find that banks that are more dependent on a single lender in the interbank market tend to bid more aggressively, i.e. place higher bids in the auctions, and pay a higher price for liquidity in the auction. Similarly banks that have a multitude of established banking relations, i.e. a higher number of interbank lenders, bid less aggressively and pay a lower price for liquidity in the auctions. Thus, in contrast to the findings in corporate finance, our results suggest that concentration in interbank lending relationships does not help mitigate borrowers' costs of overcoming liquidity shortages. Quite the contrary, having a large portfolio of established lending relationships seems to help banks meeting their liquidity requirements more efficiently. Interestingly, we also find some evidence that a bank that predominantly lends to a mon...
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
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