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Title:Relationship lending in the interbank market and the price of liquidity PDF Logo
Authors:Bräuning, Falk
Fecht, Falko
Issue Date:2012
Series/Report no.:Discussion Paper, Deutsche Bundesbank 22/2012
Abstract:This paper empirically investigates the effect of interbank relationship lending on banks' access to liquidity. Our analysis is based on German interbank payment data which we use to create a panel of unsecured overnight loans between 1079 distinct borrower-lender pairs. The data shows that banks rely on repeated interactions with the same counterparties to trade liquidity. For the price of liquidity, we find that in the run-up to the recent financial crisis of 2007/08 relationship lenders charged already higher interest rates to their borrowers after controlling for other bank specific characteristics and general market conditions. By contrast, during the crisis borrowers paid on average lower rates to their relationship lenders compared to spot lenders. The observed interest rate differences are statistically and economically significant and in line with theory that relationship lenders have private information about the creditworthiness of their close borrowers.
Subjects:Interbank Market
Relationship Lending
Liquidity Crisis
Central Counterpart
Financial Contagion
JEL:D61
E44
G10
G21
ISBN:978-3-86558-840-1
Document Type:Working Paper
Appears in Collections:Discussion Papers, Deutsche Bundesbank

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