This diploma thesis focuses on the development of the interbank market liquidity and interest rates in the Czech interbank market with special focus on the period of global crisis. We analyze determinants of the interbank interest rates and their development with respect to the key monetary policy rate. We explain the significant departure of the interbank interest rates from the key monetary policy rate (impairment of monetary policy transmission) during the global crisis by an increase in risk premia on interbank lending. The source of the risk premia is decomposed into the individual components such as liquidity risk, counterparty risk, foreign influence and other factors. Their contribution to the overall risk premia over time during the global crisis is analyzed. We find that the liquidity risk was the key determinant of tensions in the Czech interbank market in the beginning of the global crisis. However, its influence weakened over time while the role of counterparty risk increased. Keywords: interbank market, liquidity, interest rates, crisis, risk premia, credit risk, liquidity risk, counterparty risk JEL classification: G190, G210

La investigación que se presenta a continuación fue realizada por la tesista Rocio Tinoco Escalante y tiene la finalidad de obtener el grado de Magister en Gestión de la Educación. Es un estudio descriptivo el cual tiene como objetivo general analizar las opiniones del docente-empleado de Interbank en el bienio 2013-2014 referente a la gestión del talento humano en la Universidad Corporativa de Intercorp (UCIC). De esta investigación se desprenden tres objetivos específicos: Analizar las opiniones del docente-empleado acerca del desarrollo de la gestión del talento humano en UCIC; analizar las opiniones del docente-empleado de Interbank referentes a los procesos de la gestión del talento humano en la UCIC; y, analizar las sugerencias del docente-empleado de la UCIC para la gestión del talento humano de la institución. / Tesis

This paper discusses the clearing process of interbank transfers in Czech Republic and Poland. It shows principals of payment systems functioning, the structure of each system's members, and step by step process of individual types of interbanking transfers. It finds and evaluates general system's differences and shows similarities with compliance to EU directives. Furtermore it shows the analysis of system's utilization based on the absolute value of transactions and adjusted this value by economical and demographical factors.

This study assesses the impact of the Basel III regulatory framework on interbank contagion. It focuses on the direct interbank contagion that spreads via interbank foreign claims among national banking sectors. A balance sheet-based network model employs the quarterly consolidated banking statistics, collected by the Bank for International Settlements, to simulate the consequences of credit and funding shock under stressed market conditions. Compared to the Basel II, the Basel III regulatory framework reduces the probability of interbank contagion (following a simulated default of one banking sector) from 31% to 14% and lowers the impact of contagion by 63% in terms of average loss for a banking sector. The simulations under both regulatory frameworks show that relatively smaller banking sectors can trigger severe interbank contagion comparable to large banking sectors. Throughout the 2005-2009 period, the Basel III regulatory framework stabilizes the fluctuations of the scope of interbank contagion.

Cette thèse étudie les conditions d’accès des banques européennes au financement interbancaire non sécurisé entre 2006 et 2012. Elle contient trois essais empiriques explorant des micro-données relatives aux transactions interbancaires. La première étude empirique adopte une approche en termes de paires banque prêteuse/banque emprunteuse et montre que, une fois le risque de contrepartie et les imperfections de marché contrôlées, les banques ayant un risque de liquidité plus élevé paient une prime de taux d’intérêt. Nous montrons également que cette prime est augmentée par les banques disposant d’excès de liquidités, sans doute motivées par la thésaurisation ou des stratégies de “short-squeezing” des banques en besoin de liquidité. Cette étude souligne finalement l’imperfection du marché interbancaire et l’importance des diverses interventions de la BCE qui ont cherché à réduire le risque de liquidité des banques au cours de la crise. La seconde étude, par le biais d’un model 2P-FRM, explore empiriquement l’impact des relations de clientèle entre banques sur la structure de maturité de la dette interbancaire. Les résultats dévoilent que l’accès aux prêts interbancaires longs et non sécurisés est facilité par les relations durables avant et durant les périodes de stress. Cependant, lors des moments aigus de la crise suivant la chute de la banque Lehman, ces effets positifs des variables bilatérales de relations fortes, calculées comme la concentration des actifs sur une banque emprunteuse, ne sont pas là. La deuxième partie de notre modèle montre que la part en volume des crédits à terme est plus faible pour les couples de banques partenaires. Finalement, notre variable unilatérale de relation interbancaire, qui mesure la concentration du réseau d’emprunt de la banque prêteuse, s’avère impacter négativement les prêts à terme post-Lehman. Cela confirme l’hypothèse que le propre risque de refinancement court du prêteur peut être l’origine du gel post-Lehman des prêts interbancaires à terme. Finalement, le troisième essai explore le lien entre la segmentation du marché interbancaire et le noeud de corrélation des risques souverains/bancaires. En utilisant les changements des primes des CDS souverains et bancaires, nous proposons une mesure originale de corrélation partielle des spillovers souverains-banques, qui permet d’attribuer une direction pays-banques à la contagion. Les résultats montrent que ces spillovers accentuent la segmentation du marché monétaire Italien lors de la phase critique de la crise des dettes souveraines. De plus, l’étude montre que, même si l’impact pays d’origine/banques est important, la contagion venant d’autres souverains en crise est loin d’être négligeable. / This thesis studies European banks’ terms to access to unsecured interbank funding during the period 2006 to 2012. It contains three empirical essays exploring micro-data on interbank transactions. The first empirical study adopts a bank pair panel approach evidencing that, once counterparty risk and other market imperfections are controlled for, banks with higher funding liquidity risk (liquidity-short banks) pay an interest rate premium. The bank pair level analysis also permits to show that this premium is charged by liquidity-long banks, probably motivated by strategic short-squeezing or prudential hoarding purposes during the crisis. This study emphasizes the imperfection of interbank markets and the importance of theECB’s emergency interventions dedicated to dampening banks’ funding risk concerns. The second essay explores empirically the impact of relationship lending on the interbank debt maturity structure of banks by mean of a two-part fractional response model. The findings show that durable bilateral liquidity partnerships can positively impact the probability of contracting term loans before and during periods of acute stress. The positive effects of the bilateral relationship lending variable measured as asset-side concentration, is however, not straightforward, especially after the Lehman default. The second part of our model shows that the post-Lehman maturity shift is pronounced for partner banks. Finally, we find that our unilateral (lender level) relationship variable impacts negatively long term lending confirming the rollover risk viewpoint of the term interbank market freeze. Finally, the third essay investigates the link between interbank market segmentation and bank–sovereign risk nexus. Using bank and country CDS spread changes it suggests an original partial correlation based measurement of sovereign/bank spillovers providing us with a direction of contagion. Empirical findings from this part of the thesis evidence that bank-sovereign risk correlation is a significant source of fragmentation during the most acute phase of the sovereign debt crisis. Moreover, the study shows that, even if home country/bank ties impact seriously interbank market integration, the risk from other distressed countries is far from negligible.

Risk assessment on interbank networks has drawn attention from researchers since the 2007 Subprime mortgage crisis. The lack of data for interbank transactions, which are usually not disclosed unless required by regulatory bodies, is one of the most critical difficulties to this research. A remedy to this issue is the dense reconstruction of interbank networks by using balance sheet data. The Maximum-Entropy estimation has been adopted by literature, however, this method produces networks with unrealistic properties: too dense in terms of having too many links. One alternative is sparse reconstruction that proposed by literature recently. This thesis applies the Message-Passing algorithm, which is extensively applied in Thermodynamics or Computer Science, and is suggested by Mastromatteo et al. [2012] for application in network reconstruction. Dense networks and sparse networks are reconstructed from Statistics on Depository Institutions data provided by Federal Deposit Insurance Corporation, and are compared by performance in both network properties and contagion simulations. The popular contagion mechanisms proposed by Furfine [2003] and the model of liquidity dry-up contagion proposed by Malherbe [2014] are adopted and compared in contagion simulations. Results show that dense networks and sparse networks perform differently in network properties and in contagions triggered by single-bank failures, while for contagions triggered by multiple-bank failures, both types of networks perform similarly. Furfine’s mechanism fail to predict some bank failures via the credit risk contagion on liquidity side, while these failures can be simulated by the liquidity dry-up model via fire-sale and marking-to-market effect. Both mechanisms overestimate the losses before the crisis, yet this signals the instability of the banking system, while the liquidity dry-up model proposes an explanation for why the banking system did not fail before the crisis, regarding to whether the equilibrium of high liquidity will shift to the self-fulfilling liquidity dry-up equilibrium. Implications on regulation are given.

Thesis (Ph. D.)--Monash University, 2005. / Includes bibliographical references (leaves 205-218).

Chapter 1 builds a two-bank bargaining model of the overnight interbank market in which, due to the commitment of the central bank to its interest rate target, bargaining between banks impacts loan sizes rather than interest rates (the converse of existing models). As a result, policy changes have a different impact to what is posited by existing models. The model is applied to a market where the commitment of the central bank is well documented (Australia). With reasonable parameter values, the model replicates five stylised facts of the Australian market. Moreover, the stylised facts are replicated without recourse to any asymmetries. Chapter 2 extends the two-bank model to incorporate a large number of heterogeneous banks. This model is able to replicate the asymmetric shape of banks' end-of-day central bank deposit distributions (despite symmetric initial distributions); a novel contribution to the literature. Moreover, after inputting recent changes in Australian central bank policy, this model produces percentage changes in interbank trading volumes that closely align with the data. Central banks typically supply more overnight deposits than banks desire to hold (in aggregate), but this aggregate is typically small relative to interbank lending. With commitment, this is not required for the central bank to achieve its interest rate target (the typical explanation in the literature). So, to explain this phenomenon, Chapter 3 builds a DSGE model that incorporates commitment and the results from the previous chapters. Due to asymmetric information, there may be stigma associated with borrowing from the central bank's overnight lending facility, which is costly. But while the central bank can reduce use of its lending facility, by increasing aggregate deposits, the resulting fall in interbank lending is also costly; because the interbank market helps banks monitor their counterparties. Therefore, low but positive aggregate deposits can be explained as the welfare-optimising point in the trade-off between stigma and monitoring costs (a novel contribution to the literature).

This thesis studies the emergence of financial exposures between banks and introduces a novel game of financial network formation. It shows empirically that governance structures influence how banks use the interbank market to manage liquidity and that strategic factors are additional drivers of interbank lending for private banks (Ch. 2). It further develops a model of optimal bank behaviour in the absence of liquidity shocks considering the effect of an exogenous bailout probability (Ch. 3), and introduces a model of endogenous liquidity co-insurance formation (Ch. 4). The first chapter, The Purpose of Interbank Markets, tests competing theories of interbank lending using 43 quarters (2002-2012) of confidential data on the German banking sector and interbank market. It shows that banks use the interbank market for liquidity co-insurance as traditionally assumed. However, the importance of the liquidity management function is higher for regionally-focused credit cooperatives and savings banks than for private commercial banks. A distinct effect for private banks is identified; for private banks, increases in interbank liabilities are shown to correlate with a proxy for the bailout probability of banks. The chapter thus offers empirical support for an emerging literature on strategic behaviour in interbank markets and highlights the need to extend the traditional model of liquidity co-insurance. The second chapter, The Emergence of Interbank Exposures, develops a model showing that, even in the hypothetical absence of liquidity shocks, under some conditions the presence of conditional liability guarantees can lead to interbank exposures as an equilibrium outcome. It shows that such an equilibrium is characterised by banks of different sizes and asymmetric bank behaviour. Some banks are active only as lenders with others investing in a productive technology while borrowing in the interbank market. An equilibrium interbank rate is derived which depends on parameters characterising the bailout probability, including different parameters of government behaviour. The third chapter, Coordination and Competition in the Formation of Financial Networks, introduces a generalisation and extension of the seminal work of Allen and Gale (2000). It studies liquidity co-insurance between deposit-taking banks in an n-region economy. Both a static and a dynamic model of the endogenous formation of interbank liquidity co-insurance links are examined. Using a novel approach to model liquidity co-insurance, it is shown that contrary to previous findings it is not possible for banks with limited information to insure optimally against liquidity shocks. However, in a dynamic formulation of the model with best-response dynamics and learning, socially optimal insurance is an evolutionary stable equilibrium. The chapter also studies an extension to the model that introduces non-zero bailout probabilities, which endogenously leads to interbank networks consistent with the structure of interbank exposure networks documented empirically.

There is a longstanding academic debate regarding the role of financial networks. There is a tradeoff between improving the flow of funds and acting as a channel for contagion. This paper investigates the impact of banking networks on the real economy during the Great Depression. Building permit values are used as a proxy for real economic activity as implemented in previous research. A simple linear regression model estimated by ordinary least squares is used such that locational networks are differentiated from networks links to money centers and non-money centers. The results demonstrate that financial networks have both positive and negative effects on real economic activity and building permits. Positive network effects are observed when linkages to money centers are supported by strong locational networks.