Disentangling Credit and Liquidity Risks from Interbank Spreads

J.-P. Renne and G. Rousselet
Authors registered in the RePEc Author Service: Guillaume Roussellet

Rue de la Banque, 2015, issue 03

Abstract: The recent financial crisis triggered a persistent freeze in the interbank loan market, the market where banks lend to each other, mostly at a short-term horizon. In Europe, this translated into a surge in the spread between the Euribor rate, the reference short-term rate on the euro area interbank market, and the OIS rate, which is considered as a risk-free benchmark. This letter analyses fluctuations of the Euribor-OIS spread since 2007, while highlighting the respective roles of two sources of risk: credit risk and liquidity risk. The decrease in interbank market tensions that initiated in early 2012 appears to reflect mostly a decrease in liquidity risk, which can be traced back to two unconventional monetary policy measures of the Eurosystem: the Very Long Term Refinancing Operations (VLTROs) of late 2011 and the announcement of the Outright Monetary Transactions (OMT) by mid-2012.

Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:rueban:2015:03

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