The Global Crisis and subsequent sovereign debt crisis in the Eurozone severely distressed wholesale funding markets. This column argues that in the Eurozone, interbank funding conditions tightened particularly for cross-border borrowing. Moreover, during the worst moments of the crisis, the same borrower bank could pay different prices (up to 100 basis points) for identical loans during the same day. Non-standard monetary policy measures help mitigate these liquidity disruptions, with stronger effects in countries under distress.
Puriya Abbassi, Falk Bräuning, Falko Fecht, José-Luis Peydró, 02 April 2015
Dennis Reinhardt, Steven Riddiough, 07 May 2014
Cross-border funding between banks collapsed following the bankruptcy of Lehman Brothers, but the withdrawal of funding was not uniform across countries. This column argues that the composition of cross-border bank-to-bank funding can help to explain why. Interbank funding between unrelated banks is particularly vulnerable to global shocks, but intragroup funding between related banks can act as a stabilising force, particularly for advanced economies with a high share of global parent banks. Policymakers should look at disaggregated cross-border bank-to-bank flows, as doing otherwise could result in a misleading assessment of financial stability risks.
Gara Afonso, Anna Kovner, Antoinette Schoar, 26 April 2010
Many commentators have argued that interbank lending froze following the collapse of Lehman Brothers. This column presents evidence from the fed funds market that, while rates spiked and loan terms became more sensitive to borrower risk, mean borrowing amounts remained stable on aggregate. It seems likely that the market did not expand to meet additional demand for funds.
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