This chapter provides an overview of the federal funds market and how the equilibrium federal fund rate is determined. I devote particular attention to comparing and contrasting the federal funds market before and after 2008, since there were several dramatic changes around that time that...

To avoid illiquidity spillovers and basis risk in swaps, interbank lenders are especially cautious about whether interbank borrowers can meet their claims. This paper is about examining whether the incentive of interbank lenders to penalize risky borrowers can reduce the liquidity risk-taking of...

The short-term Danish interbank market before, during and after the financial crisis The paper studies the microstructure of the short-term uncollateralised Danish interbank market before, during and after the financial crisis. The financial crisis in 2008 was followed by a slowdown in trading...

We develop a model in which financial intermediaries hold liquidity to protect themselves from shocks. Depending on parameter values, banks may choose to hold too much or too little liquidity on aggregate compared with the socially optimal amount. The model endogenously generates a situation of...

Using detailed loan transactions-level data we examine the efficiency of an overnight interbank lending market, and the bargaining power of its participants. Our analysis relies on the equilibrium concept of the core, which imposes a set of no-arbitrage conditions on trades in the market. For...

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...

In this paper we conduct a simulation run on a sample of Italian banks where a trigger shock, a one-off event fairly large in size, spreads through the interbank network in a set-up featuring among the actors both commercial banks and the authorities. The banks deleverage to comply with a...

At the heart of the eurozone crisis lies the inability of the current monetary policy framework to avert the on-going financial disintegration and to break the vicious circle that ties up banks and governments in a death grip (liquidity ring-fencing), which does not allow policies to deal...