Kiel Working Papers, Kiel Institute for World Economics
No 1772:
Structure in the Italian Overnight Loan Market
Matthias Raddant
Abstract: We analyze the Italian interbank loan market from 1999
until 2010. The analysis of net trade flows shows a high imbalance caused
by few large net borrowers in the market. The trading volume shows a
significant drop starting in 2007, which accelerates with the Lehman
default in late 2008. The network, based on trading relationships, is very
dense. Hence, we try to identify strong links by looking for preferential
lending relationships expressed by discounts in the loan rate. Furthermore,
we estimate the dynamics of credit spreads for each bank and find that
economically significant spreads for the overnight market only developed in
2010. The analysis of bilateral loan relationships reveals that in the
pre-crisis era large net borrowers used to borrow at a slight discount. In
the post-Lehman era borrowers with large net exposures paid more than the
average market rate, which shows that the risk evaluation of market
participants has changed considerably
Keywords: interbank markets, overnight loans, preferential lending; (follow links to similar papers)
JEL-Codes: G15,; G21,; E44; (follow links to similar papers)
31 pages, May 2012
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