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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

Abstract: 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
Date: 2020-04
New Economics Papers: this item is included in nep-ban, nep-cba and nep-mac
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