What do almost 20 years of micro data and two crises say about the relationship between central bank and interbank market liquidity? Evidence from Italy

Massimiliano Affinito

No 1238, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper studies the mutual interplay between central bank (CB) liquidity provisions and interbank markets (IM) liquidity exchanges exploring whether the relationship changes during IM impairments and CB massive liquidity injections in the global and sovereign crises. The analysis leverages on a dataset containing seventeen years of monthly bank-by-bank and counterparty-by-counterparty data from 1998 to 2015 in Italy. The results show the existence of a complementarity relationship. Banks receiving CB liquidity redistribute more to other banks. When CB liquidity increases exponentially in the crises some healthy banks specialize in interbank lending. The complementarity relationship helps to offset the euro-area fragmentation via domestic interbank relationships and to adjust collateral and maturity profiles of banks’ liquidity.

Keywords: liquidity; financial and sovereign crises; central bank intervention; interbank (search for similar items in EconPapers)
JEL-codes: C30 E52 G21 (search for similar items in EconPapers)
Date: 2019-10
New Economics Papers: this item is included in nep-ban, nep-mac and nep-mon
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Citations: View citations in EconPapers (1)

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Working Paper: What do almost 20 years of micro data and two crises say about the relationship between central bank and interbank market liquidity? Evidence from Italy (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_1238_19

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