Does a bank levy increase frictions on the interbank market?

Aneta Hryckiewicz, Piotr Mielus, Karolina Skorulska and Malgorzata Snarska

No 2018-033, KAE Working Papers from Warsaw School of Economics, Collegium of Economic Analysis

Abstract: The crisis has shown that a drop in liquidity, as well as the shortened maturity of interbank transactions, has caused many problems for banks. We analyze how the introduction of a bank levy on bank assets in Poland has affected the interbank market, as well as money market pricing. Analyzing daily volume and number of interbank transactions, along with daily bank quotes, we document that the bank levy has significantly reduced trading intensity on the market, shortening the maturity of transactions. We also find that it has increased the dispersion of bank quotes for short-term transactions, while at the same time ''killing'' interbank long-term transactions, including the pricing for this market. The regulators should re-think the nature of bank levies in several countries, as they negatively affect the functioning of the interbank market and brings intoquestion the credibility of interbank benchmarks.

Keywords: C32; G28; E43; C54 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2018-03
New Economics Papers: this item is included in nep-ban, nep-mac, nep-mon and nep-tra
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Persistent link: https://EconPapers.repec.org/RePEc:sgh:kaewps:2018033

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