Interbank Intermediation

45 Pages Posted: 21 Jun 2016

See all articles by Marcel Bluhm

Marcel Bluhm

The Block

Co-Pierre Georg

EDHEC Business School

Jan Pieter Krahnen

Goethe University Frankfurt

Date Written: 2016

Abstract

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 intermediation process within the banking system, with implications for allocative efficiency and financial stability. A typical bank in our sample holds a significant amount of term and overnight interbank positions on both sides of the balance sheet simultaneously, and at any point in time. The average contract length in the German interbank market is well above one year, which stands in contrast to the widely held view that interbank exposures are largely overnight. Based on panel regressions, we find the build-up of the interbank book to be driven by innovations in the client book (i.e. non-bank deposit taking and lending). The resulting interbank book affects the bank's duration gap, the maturity disparity between bank assets and bank liabilities. A bank's duration gap is often seen as its major macroeconomic risk factor. Overall our findings lend support to a theory of banking that involves leverage stacks, i.e intermediation among banks.

Keywords: interbank markets, liquidity, financial stability

JEL Classification: G2

Suggested Citation

Bluhm, Marcel and Georg, Co-Pierre and Krahnen, Jan Pieter, Interbank Intermediation (2016). Bundesbank Discussion Paper No. 16/2016, Available at SSRN: https://ssrn.com/abstract=2797089 or http://dx.doi.org/10.2139/ssrn.2797089

Marcel Bluhm (Contact Author)

The Block ( email )

New York
United States

Co-Pierre Georg

EDHEC Business School ( email )

58 rue du Port
Lille, 59046
France

Jan Pieter Krahnen

Goethe University Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

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