EconPapers    
Economics at your fingertips  
 

Efficiency and Bargaining Power in the Interbank Loan Market

Jason Allen (), James Chapman (), Federico Echenique () and Matthew Shum ()

Staff Working Papers from Bank of Canada

Abstract: Using detailed loan transactions-level data we examine the efficiency of an overnight interbank lending market, and the bargaining power of its participants. Our analysis relies on the equilibrium concept of the core, which imposes a set of no-arbitrage conditions on trades in the market. For Canada we show that while the market is fairly efficient, some degree of inefficiency persists throughout our sample. The level of inefficiency matches distinct phases of both the Bank of Canada’s operations as well as phases of the 2007- 2008 financial crisis, where more liquidity intervention implies more inefficiency. We find that bargaining power tilted sharply towards borrowers as the financial crisis progressed, and towards riskier borrowers. This supports a nuanced version of the Too- Big-To-Fail story, whereby participants continued to lend to riskier banks at favorable rates, not because of explicit support to the riskier banks provided by governmental authorities, but rather due to the collective self-interest of these banks.

Keywords: Financial Institutions; Payment clearing and settlement systems (search for similar items in EconPapers)
JEL-codes: C71 E58 G21 G28 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2012
New Economics Papers: this item is included in nep-ban, nep-fmk and nep-gth
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7) Track citations by RSS feed

Downloads: (external link)
https://www.bankofcanada.ca/wp-content/uploads/2012/09/wp2012-29.pdf

Related works:
Journal Article: EFFICIENCY AND BARGAINING POWER IN THE INTERBANK LOAN MARKET (2016) Downloads
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:bca:bocawp:12-29

Access Statistics for this paper

More papers in Staff Working Papers from Bank of Canada 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2023-01-25
Handle: RePEc:bca:bocawp:12-29