The price of liquidity: the effects of market conditions and bank characteristics
Kjell Nyborg,
Falko Fecht and
Jörg Rocholl
No 1376, Working Paper Series from European Central Bank
Abstract:
We study the prices that individual banks pay for liquidity (captured by borrowing rates in repos with the central bank and benchmarked by the overnight index swap) as a function of market conditions and bank characteristics. These prices depend in particular on the distribution of liquidity across banks, which is calculated over time using individual bank-level data on reserve requirements and actual holdings. Banks pay more for liquidity when positions are more imbalanced across banks, consistent with the existence of short squeezing. We also show that small banks pay more for liquidity and are more vulnerable to squeezes. Healthier banks pay less but, contrary to what one might expect, banks in formal liquidity networks do not. State guarantees reduce the price of liquidity but do not protect against squeezes. JEL Classification: G12, G21, E43, E58, D44
Keywords: banks; imbalance; liquidity; money markets; repos (search for similar items in EconPapers)
Date: 2011-09
New Economics Papers: this item is included in nep-ban, nep-cba and nep-mon
Note: 77663
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (65)
Downloads: (external link)
https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp1376.pdf (application/pdf)
Related works:
Journal Article: The price of liquidity: The effects of market conditions and bank characteristics (2011) 
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:ecb:ecbwps:20111376
Access Statistics for this paper
More papers in Working Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().