Post by Sapphire Capital on Jan 22, 2009 22:26:14 GMT 4
Liquidity Matters: Evidence from the Russian Interbank Market
Alexei Karas
Roosevelt Academy; Centre for Russian International Socio-Political and Economic Studies (CERISE); Faculty of Finance, Urals State University of Economics
Koen J.L. Schoors
Ghent University - Centre for Russian International Socio-Political and Economic Studies (CERISE); Ghent University - Department of General Economics
Gleb Lanine
Ghent University - Department of Financial Economics; Ghent University - Centre for Russian International Socio-Political and Economic Studies (CERISE)
November 12, 2008
BOFIT Discussion Paper No. 19/2008
Abstract:
We suggest an additional transmission channel of contagion on the interbank market - the liquidity channel. Examining the Russian banking sector, we and that the liquidity channel contributes significantly to understanding and predicting interbank market crises. Interbank market stability Granger causes the interbank market structure, while the opposite causality is rejected. This bolsters the view that the interbank market structure is endogenous. The results corroborate the thesis that prudential regulation at the individual bank level is insufficient to prevent systemic crises. We demonstrate that liquidity injections of a classical lender of last resort can effectively mitigate coordination failures on the interbank market both in theory and practice. Apparently, liquidity does matter.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1304594_code839764.pdf?abstractid=1304594&mirid=3
Alexei Karas
Roosevelt Academy; Centre for Russian International Socio-Political and Economic Studies (CERISE); Faculty of Finance, Urals State University of Economics
Koen J.L. Schoors
Ghent University - Centre for Russian International Socio-Political and Economic Studies (CERISE); Ghent University - Department of General Economics
Gleb Lanine
Ghent University - Department of Financial Economics; Ghent University - Centre for Russian International Socio-Political and Economic Studies (CERISE)
November 12, 2008
BOFIT Discussion Paper No. 19/2008
Abstract:
We suggest an additional transmission channel of contagion on the interbank market - the liquidity channel. Examining the Russian banking sector, we and that the liquidity channel contributes significantly to understanding and predicting interbank market crises. Interbank market stability Granger causes the interbank market structure, while the opposite causality is rejected. This bolsters the view that the interbank market structure is endogenous. The results corroborate the thesis that prudential regulation at the individual bank level is insufficient to prevent systemic crises. We demonstrate that liquidity injections of a classical lender of last resort can effectively mitigate coordination failures on the interbank market both in theory and practice. Apparently, liquidity does matter.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1304594_code839764.pdf?abstractid=1304594&mirid=3