The Interbank Market Puzzle

Franklin Allen (), Xian Gu and Oskar Kowalewksi
Additional contact information
Franklin Allen: Imperial College London, United Kingdom
Xian Gu: Central University of Finance & Economics, China
Oskar Kowalewksi: IESEG School of Management (LEM-CNRS-UMR 9221)
Authors registered in the RePEc Author Service: Oskar Kowalewski ()

No 2018-ACF-02, Working Papers from IESEG School of Management

Abstract: This study documents significant differences in the interbank market lending and borrowing levels across countries. We argue that the existing differences in interbank market usage can be explained by the trust of the market participants in the stability of the country’s banking sector and counterparties. We test our assumptions by employing different proxies for trust in the countries’ banking sectors and by controlling for bank-specific risk. We find that banks originating from a country that has experienced longer periods of banking crises or more bank failures are able to attract less interbank deposits. However, we find that the quality of legal regulations and institutions can help mitigate the adverse impact of the low level of trust in the banking system. Hence, institutional factors might partially substitute for the limited trust and enhance interbank activity.

Keywords: interbank market; trust; counterparty risk; crises; legal enforcement; regulations (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 (search for similar items in EconPapers)
Pages: 73 pages
Date: 2018-02
New Economics Papers: this item is included in nep-ban
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Citations: View citations in EconPapers (4)

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Related works:
Working Paper: The interbank market puzzle (2020)
Working Paper: The interbank market puzzle (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:ies:wpaper:f201802

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