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Market microstructure, banks’ behaviour and interbank spreads: evidence after the crisis

  • Burcu Kapar
  • Giulia Iori
  • Giampaolo GabbiEmail author
  • Guido Germano
Regular Article

Abstract

We present a study of the European electronic interbank market of overnight lending (e-MID) before and after the beginning of the financial crisis. The main goal of the paper is to explain the structural changes of lending/borrowing features due to the liquidity turmoil. Unlike previous contributions that focused on banks’ dependent and macro information as explanatory variables, we address the role of banks’ behaviour and market microstructure as determinants of the credit spreads. We show that all banks experienced significant variations in their liquidity costs due to the sensitivity of interbank rates to the timing and side of trades. We argue that, while larger banks did experience better funding conditions after the crisis, this was not just a consequence of the “too big to fail” perception of the market. Larger banks have been able to play more strategically when managing their liquidity by taking advantage of the changing market microstructure.

Keywords

Interbank lending Market microstructure Subprime crisis Liquidity management 

Notes

Acknowledgements

Funding was provided by European Union (Grant No. 255987).

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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2019

Authors and Affiliations

  1. 1.American University in DubaiDubaiUnited Arab Emirates
  2. 2.City, University of LondonLondonUK
  3. 3.University of SienaSienaItaly
  4. 4.SDA Bocconi School of ManagementMilanItaly
  5. 5.University College LondonLondonUK
  6. 6.London School of Economics and Political ScienceLondonUK

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