Bank Funding Cost and Liquidity Supply Regimes
Eric Jondeau (),
Benoit Mojon () and
Jean-Guillaume Sahuc ()
No 854, BIS Working Papers from Bank for International Settlements
Designing operations for liquidity support requires central banks to properly measure and monitor bank funding risk in real time. We construct a new indicator of rollover risk for banks, called the forward funding spread. By accounting for market participants' expectations of how funding costs will evolve over time, it serves as a better signal of the change in the stance of monetary policy than the usual spot InterBank Offered Rate-Overnight Interest Swap spread. Our indicator helps to contrast three liquidity regimes, which coincide with the levels of excess liquidity supplied by central banks.
Keywords: bank funding risk; bank credit spreads; liquidity supply regimes; multicurve environment; economic activity predictability (search for similar items in EconPapers)
JEL-codes: E32 E44 E52 (search for similar items in EconPapers)
Pages: 47 pages
New Economics Papers: this item is included in nep-ban, nep-cba and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:854
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