Effects of Central Bank Intervention on the Interbank Market During the Subprime Crisis
By Celso Brunetti, M. Filippo, Jeffrey H. Harris. 2011
113 citations recorded by the source corpus.
We explore whether central bank intervention improves liquidity in the interbank market during the current subprime crisis with unique trade and quote data from the e-MID, the only regulated electronic interbank market in the world. Central bank intervention consistently creates greater uncertainty in the interbank market. Prior to the crisis, the cover-to-bid ratio effectively conveys good and bad news from the central bank, but this link is broken during the crisis, suggesting that standard (and special) interventions that do not specifically target interbank asymmetric information fail to improve market liquidity. Our results suggest that the central bank should release stress tests for individual banks, provide interbank loan guarantees, or engage in direct asset purchases rather than simply providing more capital when counterparty risk poses systemic risk to the interbank market. The Author 2011. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com., Oxford University Press.
Subfields: Economics and Econometrics, Finance
View Paper: https://www.semanticscholar.org/paper/d1e1750c56f1cd36cd70889f87d4a7e837156dce
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Citations in the corpus
- The Euro Interbank Repo Market (2016, unknown): “, Brunnermeier and Pedersen, 2008). Thus, we also analyze intraday variability and repo market illiquidity. The average daily realized volatility of repo rates and the bid-ask spread implied by Roll’s (1984) measure as a representative measure of market illiquidity are shown in Figure 9 for each wee”
- The ECB Unconventional Monetary Policies: Have They Lowered Market Borrowing Costs for Banks and Governments? (2012, background): “First, by furnishing unlimited liquidity provisions to banks the ECB substituted itself for the interbank market and might have caused a “crowding out” effect as also shown in Brunetti et al. (2011).”