Transparency in the Interbank Market and the Volume of Bank Intermediated Loans

Udo Broll and Bernhard Eckwert

No 10/04, Dresden Discussion Paper Series in Economics from Technische Universität Dresden, Faculty of Business and Economics, Department of Economics

Abstract: In this paper we study the impact of more transparency in the interbank market on the volume of bank intermediated loans and on the profitability of the banking business. Transparency is modeled by means of the informational content of publicly observable signals correlated to the random interbank interest rate. We find that more transparency may increase or decrease the volume of bank loans. In particular, the impact of more transparency on the volume of loans depends on the curvature of the marginal cost function of the banking firm. Furthermore, we find that ex ante expected profits of the bank are higher when the interbank market is more transparent.

Keywords: banking firm; interbank market; interest rate risk; hedging; transparency (search for similar items in EconPapers)
JEL-codes: G21 (search for similar items in EconPapers)
Date: 2004
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:tuddps:1004

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