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Studies in Nonlinear Dynamics & Econometrics

Ed. by Mizrach, Bruce

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Volume 19, Issue 3 (Jun 2015)

Issues

Bank characteristics and the interbank money market: a distributional approach

Giulia Iori / Burcu Kapar / Jose Olmo
  • Corresponding author
  • School of Social Sciences, Economics Division, University of Southampton, Room 3015, Bld 58 (Murray Bld), Highfield Campus, Southampton, SO17 1BJ, UK
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Published Online: 2015-05-21 | DOI: https://doi.org/10.1515/snde-2014-0030

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.

Keywords: e-mid interbank money market; nonparametric kernel estimation; panel data methods; random effects; stochastic dominance tests

JEL classification:: C12; C14; G01; G20

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About the article

Corresponding author: Jose Olmo, School of Social Sciences, Economics Division, University of Southampton, Room 3015, Bld 58 (Murray Bld), Highfield Campus, Southampton, SO17 1BJ, UK, e-mail:


Published Online: 2015-05-21

Published in Print: 2015-06-01


Citation Information: Studies in Nonlinear Dynamics & Econometrics, ISSN (Online) 1558-3708, ISSN (Print) 1081-1826, DOI: https://doi.org/10.1515/snde-2014-0030.

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