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Market microstructure, banks' behaviour and interbank spreads: evidence after the crisis

Kapar, Burcu, Iori, Giulia, Gabbi, Giampaolo and Germano, Guido (2020) Market microstructure, banks' behaviour and interbank spreads: evidence after the crisis. Journal of Economic Interaction and Coordination, 15 (1). 283 - 331. ISSN 1860-711X

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Identification Number: 10.1007/s11403-019-00248-3

Abstract

We present a study of the European electronic interbank market of overnight lending (e-MID) before and after the beginning of the financial crisis. The main goal of the paper is to explain the structural changes of lending/borrowing features due to the liquidity turmoil. Unlike previous contributions that focused on banks’ dependent and macro information as explanatory variables, we address the role of banks’ behaviour and market microstructure as determinants of the credit spreads. We show that all banks experienced significant variations in their liquidity costs due to the sensitivity of interbank rates to the timing and side of trades. We argue that, while larger banks did experience better funding conditions after the crisis, this was not just a consequence of the “too big to fail” perception of the market. Larger banks have been able to play more strategically when managing their liquidity by taking advantage of the changing market microstructure.

Item Type: Article
Official URL: https://link.springer.com/journal/11403
Additional Information: © 2019 Springer-Verlag GmbH Germany, part of Springer Nature
Divisions: Systemic Risk Centre
Subjects: H Social Sciences > HG Finance
Date Deposited: 15 Apr 2019 09:09
Last Modified: 27 Jun 2020 23:24
URI: http://eprints.lse.ac.uk/id/eprint/100467

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