Liquidity matters : evidence from the Russian interbank market
Karas, Alexei; Schoors, Koen; Lanine, Gleb (19.11.2008)
Numero
19/2008Julkaisija
Bank of Finland
2008
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:bof-201408072099Tiivistelmä
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.