The Influence of a Heterogeneous Banking Sector on the Interbank Market Rate in the Euro Area

Ulrike Neyer and Jürgen Wiemers

Swiss Journal of Economics and Statistics (SJES), 2004, vol. 140, issue III, 395-428

Abstract: This paper presents an interbank market model with a heterogeneous banking sector. We show that banks participate in the interbank market because they differ in marginal costs of obtaining funds from the European Central Bank. Our model shows that this heterogeneity implies intermediation by banks with relatively low marginal costs. The resulting positive spread between the interbank market rate and the central bank rate is determined by transaction costs in the interbank market, total liquidity needs of the banking sector, costs of obtaining funds from the central bank, and the distribution of the latter across banks.

Keywords: monetary policy; interbank money market; European Central Bank; monetary policy instruments (search for similar items in EconPapers)
JEL-codes: E43 E52 E58 G21 (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:ses:arsjes:2004-iii-6

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