Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/152508
Authors: 
Freixas, Xavier
Holthausen, Cornelia
Year of Publication: 
2001
Series/Report no.: 
ECB Working Paper 74
Abstract: 
While domestic interbank markets are often considered to work in an efficient way, cross-country bank lending appears to be subjected to market imperfections leading to persistent interest rate differentials. In a model where banks need to cope with liquidity shocks by borrowing or by liquidating assets, we study the scope for international interbank market integration with unsecured lending when cross-country information is noisy. We find that an equilibrium with integrated markets need not always exist, and that it coexists with one characterized by segmentation. A repo market reduces interest rate spreads and improves upon the segmentation equilibrium. However, it may destroy the unsecured integrated equilibrium.
Subjects: 
Asymmetric information
Banking theory
financial integration
Interbank markets
JEL: 
G15
G20
F36
Document Type: 
Working Paper

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