Merchants of Debt at the Extreme Overnight: Re-Considering Monetary Theories via Rollover-Induced Interbank Frictions

Jessica Reale

Review of Political Economy, 2025, vol. 37, issue 1, 165-182

Abstract: Banks’ refusal to roll over short-term interbank debts has received increased attention since the global financial crisis. Yet, heterodox monetary theories ignore interbank transactions and rollover channels despite recognising the importance of banks’ debt-renewal practices. Against this backdrop, this research contextualises banks’ refinancing vulnerabilities within heterodox monetary theories and relates them to the literature on rollover-induced interbank frictions. This study also reveals a further shock amplifier. Due to the interplay between maturity-rollover and market-funding liquidity cycles, a rollover-circuit may emerge. This circuit may lead to additional threats to the operation of the interbank market and financial stability, compelling monetary theories not to further neglect banks’ refinancing issues.

Date: 2025
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DOI: 10.1080/09538259.2023.2190015

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