Credit and liquidity in interbank rates: A quadratic approach

Simon Dubecq (), Alain Monfort, Jean-Paul Renne and Guillaume Roussellet

Journal of Banking & Finance, 2016, vol. 68, issue C, 29-46

Abstract: A bank that lends on the unsecured market requires compensations for facing the default risk of the borrowing bank (credit risk) and the risk associated to its own future funding needs (liquidity risk). In this paper, we propose a quadratic term-structure model of the spreads between unsecured and risk-free interbank rates. Our no-arbitrage econometric framework allows us to decompose the term structure of spreads into credit and liquidity components and to identify risk premia associated with each of these two risks. Our results suggest that, over the period 2012–2013, most of the reduction in interbank spreads comes from a decrease in liquidity-related risk components.

Keywords: Quadratic term-structure model; Liquidity risk; Credit risk; Interbank market; Unconventional monetary policy (search for similar items in EconPapers)
JEL-codes: E43 E44 G12 G21 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S037842661630019X
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Credit and Liquidity in Interbank Rates: a Quadratic Approach (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:68:y:2016:i:c:p:29-46

DOI: 10.1016/j.jbankfin.2016.03.014

Access Statistics for this article

Journal of Banking & Finance is currently edited by Ike Mathur

More articles in Journal of Banking & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().