Interbank Loans, Collateral and Modern Monetary Policy

53 Pages Posted: 19 Sep 2016

See all articles by Marcin Wolski

Marcin Wolski

European Investment Bank

Michiel van de Leur

Vrije Universiteit Amsterdam, School of Business and Economics

Date Written: September 16, 2016

Abstract

This study develops a novel agent-based model of the interbank market with endogenous credit risk formation mechanisms. We allow banks to exchange funds through unsecured and secured transactions in order to facilitate the flow of funds to the most pro table investment projects. Our model confirms basic stylized facts on (i) bank balance sheet distributions, (ii) interbank interest rates and (iii) interbank lending volumes, for both the secured and the unsecured market segments. We also find that network structures within the secured market segment are characterized by the presence of dealer banks, while we do not observe similar patterns in the unsecured market. Finally, we illustrate the usefulness of our model for analysing a number of policy scenarios.

Keywords: Interbank lending, Agent-based models, Collateral, Repo, Networks

JEL Classification: C63, E17, E47, E58

Suggested Citation

Wolski, Marcin and van de Leur, Michiel, Interbank Loans, Collateral and Modern Monetary Policy (September 16, 2016). ECB Working Paper No. 1959, Available at SSRN: https://ssrn.com/abstract=2839816 or http://dx.doi.org/10.2139/ssrn.2839816

Marcin Wolski (Contact Author)

European Investment Bank ( email )

Luxembourg City, 2968
Luxembourg
691286623 (Phone)

Michiel Van de Leur

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

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