We empirically investigate why wholesale funding is fragile by providing the first study of how individual banks borrow and lend in the euro unsecured and secured interbank market. Consistent with theories in which lenders enforce market discipline by monitoring counterparty credit risk and...

We empirically investigate the effect that relationship lending has on the availability and pricing of interbank liquidity. Our analysis is based on a daily panel of unsecured overnight loans between 1,079 distinct German bank pairs from March 2006 to November 2007, a period that includes the...

Did the increase in counterparty risk perception in the interbank market since autumn 2007 contribute to the severe contraction of the US economy? To address this question we introduce interbank market uncertainty in a DSGE model with frictional financial intermediation. Interbank uncertainty is...

We introduce a novel simulation-based network approach, which provides full-edged distributions of potential interbank losses. Based on those distributions we propose measures for (i) systemic importance of single banks, (ii) vulnerability of single banks, and (iii) vulnerability of the whole...

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...