The interbank market during a crisis

C. Furfine

No 99, BIS Working Papers from Bank for International Settlements

Abstract: The autumn of 1998 provides a setting in which to test the performance of the interbank market during a potential financial crisis. This period witnessed Russia's effective default on its sovereign bonds and the near collapse of the hedge fund Long-Term Capital Management. Despite these negative shocks to bank capital and increased uncertainty in financial markets more generally, the federal funds market still effectively channeled liquidity to those institutions in need at rates consistent with Federal Reserve intentions. Further, risk premiums on overnight lending were largely unaffected and lending volumes increased, suggesting that the federal funds market performed well during this period.

Pages: 19 pages
Date: 2001-06
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Citations: View citations in EconPapers (13)

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