Norwegian interbank market's response to changes in liquidity policy

Q. Farooq Akram and Jon H. Findreng

Journal of Banking & Finance, 2021, vol. 125, issue C

Abstract: We investigate activity and pricing in the Norwegian unsecured overnight interbank market in response to a change in the central bank’s liquidity policy. In October 2011, to encourage interbank trading, banks were allotted quotas for their overnight reserves with remuneration at the policy rate, while that on overnight reserves beyond allotted quotas was set one percentage point lower. In addition, total liquidity in the system was substantially reduced and targeted within a narrow range. We document a significant increase in interbank activity and a fall in interest rates relative to the policy rate following the policy shift. Banks are found to distribute total liquidity more actively as borrowers and lenders. In particular, banks generally borrow from their peers at lower interest rates than before the policy shift.

Keywords: Overnight interbank market; Interest rates; Central bank liquidity policy (search for similar items in EconPapers)
JEL-codes: E43 E58 G21 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:125:y:2021:i:c:s0378426621000364

DOI: 10.1016/j.jbankfin.2021.106078

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