Trading Partners in the Interbank Lending Market - Federal Reserve Bank of New York

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Staff Reports

Trading Partners in the Interbank Lending Market

May 2013 Number 620
Revised: October 2014

JEL classification: G21, G10, D40, E59

Authors: Gara Afonso, Anna Kovner, and Antoinette Schoar

There is substantial heterogeneity in the structure of trading relationships in the U.S. overnight interbank lending market: Some banks rely on spot transactions, while a majority form stable, concentrated borrowing relationships to hedge liquidity needs. Borrowers pay lower prices and borrow more from their concentrated lenders. When there are exogenous shocks to liquidity supply (days with low GSE lending), concentrated lenders insulate borrowers from the shocks without charging significantly higher interest rates.

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54 pages / 322 kb

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