Interbank Lending, Credit-Risk Premia, and Collateral

Florian Heider and Marie Hoerova

International Journal of Central Banking, 2009, vol. 5, issue 4, 5-43

Abstract: We study the functioning of secured and unsecured interbank markets in the presence of credit risk. The model generates empirical predictions that are in line with developments during the 2007–09 financial crisis. Interest rates decouple across secured and unsecured markets following an adverse shock to credit risk. The scarcity of underlying collateral may amplify the volatility of interest rates in secured markets. We use the model to discuss various policy responses to the crisis.

JEL-codes: E58 G01 G21 (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (34)

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Related works:
Working Paper: Interbank lending, credit risk premia and collateral (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:ijc:ijcjou:y:2009:q:4:a:1

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