In this paper, we report a descriptive investigation of the structural evolution of two of the most important over-the-counter markets for liquidity in Germany: the interbank market for credit and for derivatives. We use end-of-quarter data from the German large credit register between 2002 and...

This paper studies the bank-sovereign link in a dynamic stochastic general equilibrium set-up with strategic default on public debt. Heterogeneous banks give rise to an interbank market where government bonds are used as collateral. A default penalty arises from a breakdown of interbank...

Our results uncover a so far undocumented ability of the interbank market to distinguish between banks of different quality in times of aggregate distress. We show empirical evidence that during the 2007 financial crisis the inability of some banks to roll over their interbank debt was not due...

We propose an algorithm to model contagion in the interbank market via what we term the credit quality channel. In existing models on contagion via interbank credit, external shocks to banks often spread to other banks only in case of a default. In contrast, shocks are transmitted via asset...

In this paper, we focus on the interconnectedness of banks and the price they pay for liquidity. We assess how the concentration of credit relationships and the position of a bank in the network topology of the system influence the bank’s ability to meet its liquidity demand. We use quarterly...

The pattern of financial linkages is important in many areas of banking and finance. Yet bilateral linkages are often unknown, and maximum entropy serves as the leading method for estimating unobserved counterparty exposures. This paper proposes an efficient alternative that combines...

We analyze the relation between market-based credit risk interconnectedness among banks during the crisis and the associated balance sheet linkages via funding and securities holdings. For identification, we use a proprietary dataset that has the funding positions of banks at the bank-to-bank...

This paper explores the economics of interbank lending and borrowing using bank-balance sheet data for Germany, the largest European economy. Our 2002 - 2014 panel data set allows us to analyze the cross section and the dynamics of the observed interbank exposures. Our findings suggest a genuine...

We look at the effect of capital rules on a banking system that is connected through correlated credit exposures and interbank lending. The rules, which combine individual bank characteristics and interconnectivity measures of interbank lending, are to minimize a measure of system-wide losses....

We analyze the impact of financial crises and monetary policy on the supply of wholesale funding liquidity, and also on the compositional supply effects through cross-border and relationship lending. For empirical identification, we draw on the proprietary bank-to-bank European interbank dataset...