Bank characteristics and the interbank money market: a distributional approach

Bank characteristics and the interbank money market: a distributional approach Abstract This paper studies the relationship between bank characteristics, such as size, nationality, operating currency and sovereign debt in the parent country, and the distribution of funding spreads observed in the e-MID interbank money market during the Great financial crisis. Our setup is a pseudo-panel with a random number of international banks acting in the interbank market in each period. We develop new econometric tools for panel data with random effects and discrete covariates, such as a nonparametric kernel estimator of the distribution function of the response variable conditional on a set of covariates and a consistent test of first order stochastic dominance. Our empirical results, based on these tests, shed light on the survivorship bias in the e-Mid market, and reveal the existence of a risk premium on small banks, banks with currencies different from the Euro, and banks based on countries under sovereign debt distress in the periphery of the European Union. Finally we assess the impact of policy intervention in the aftermath of the financial crisis. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Studies in Nonlinear Dynamics & Econometrics de Gruyter

Bank characteristics and the interbank money market: a distributional approach

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Publisher
de Gruyter
Copyright
Copyright © 2015 by the
ISSN
1081-1826
eISSN
1558-3708
DOI
10.1515/snde-2014-0030
Publisher site
See Article on Publisher Site

Abstract

Abstract This paper studies the relationship between bank characteristics, such as size, nationality, operating currency and sovereign debt in the parent country, and the distribution of funding spreads observed in the e-MID interbank money market during the Great financial crisis. Our setup is a pseudo-panel with a random number of international banks acting in the interbank market in each period. We develop new econometric tools for panel data with random effects and discrete covariates, such as a nonparametric kernel estimator of the distribution function of the response variable conditional on a set of covariates and a consistent test of first order stochastic dominance. Our empirical results, based on these tests, shed light on the survivorship bias in the e-Mid market, and reveal the existence of a risk premium on small banks, banks with currencies different from the Euro, and banks based on countries under sovereign debt distress in the periphery of the European Union. Finally we assess the impact of policy intervention in the aftermath of the financial crisis.

Journal

Studies in Nonlinear Dynamics & Econometricsde Gruyter

Published: Jun 1, 2015

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