What drives interbank loans? Evidence from Canada
Narayan Bulusu and
Pierre Guérin ()
Journal of Banking & Finance, 2019, vol. 106, issue C, 427-444
We find that collateral reallocation costs are a significant driver of the dynamics of overnight interbank loans. The cost of negotiating and settling collateralized over-the-counter trades incentivizes the temporary use of unsecured loans to meet changes in short-term liquidity needs, as well as greater uptake of central bank overnight lending facilities. This friction also leads to repos adjusting gradually in response to persistent changes in liquidity demand.
Keywords: Interbank lending; Funding liquidity; Repurchase agreements (repos); Collateral management (search for similar items in EconPapers)
JEL-codes: C55 E43 G23 (search for similar items in EconPapers)
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Working Paper: What Drives Interbank Loans? Evidence from Canada (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:106:y:2019:i:c:p:427-444
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