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Efficiency and Bargaining Power in the Interbank Loan Market

Allen, Jason and Chapman, James and Echenique, Federico and Shum, Matthew (2016) Efficiency and Bargaining Power in the Interbank Loan Market. International Economic Review, 57 (2). pp. 691-716. ISSN 0020-6598. http://resolver.caltech.edu/CaltechAUTHORS:20160527-090941607

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Abstract

Using detailed transactions-level data on interbank loans, we examine the efficiency of an overnight interbank lending market and the bargaining power of its participants. Our analysis relies on the equilibrium concept of the core, which imposes a set of no-arbitrage conditions on trades in the market. For Canada's Large Value Transfer System, we show that although the market is fairly efficient, systemic inefficiency persists throughout our sample. The level of inefficiency matches distinct phases of both the Bank of Canada's operations as well as phases of the 2007–8 financial crisis. We find that bargaining power tilted sharply toward borrowers as the financial crisis progressed and (surprisingly) toward riskier borrowers.


Item Type:Article
Related URLs:
URLURL TypeDescription
http://dx.doi.org/10.1111/iere.12173 DOIArticle
http://onlinelibrary.wiley.com/doi/10.1111/iere.12173/abstractPublisherArticle
http://ssrn.com/abstract=2125925SSRNDiscussion Paper
http://resolver.caltech.edu/CaltechAUTHORS:20160329-102445567Related ItemEarlier version of paper (Sept. 2012)
ORCID:
AuthorORCID
Shum, Matthew0000-0002-6262-915X
Additional Information:© 2016 Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association. Issue online: 28 April 2016. Version of record online: 28 April 2016. Manuscript Revised: 14 January 2015. Manuscript Received: 14 June 2013. The views expressed here are those of the authors and should not be attributed to the Bank of Canada. We thank the Canadian Payments Association. We thank Lana Embree, Matthias Fahn, Rod Garratt, Denis Gromb, Scott Hendry, Thor Koeppl, James MacKinnon, Antoine Martin, Sergio Montero, Mariano Tappata, and James Thompson as well as seminar participants at the University of Western Ontario, Renmin University of China, the Bank of Canada workshop on financial institutions and markets, the FRBNY, IIOC (Arlington), and Queen’s University for comments. Any errors are our own.
Subject Keywords:interbank markets, cooperative bargaining, financial institutions
Classification Code:JEL Classification: C71, G21, G28, E58
Record Number:CaltechAUTHORS:20160527-090941607
Persistent URL:http://resolver.caltech.edu/CaltechAUTHORS:20160527-090941607
Official Citation:Allen, J., Chapman, J., Echenique, F. and Shum, M. (2016), EFFICIENCY AND BARGAINING POWER IN THE INTERBANK LOAN MARKET. International Economic Review, 57: 691–716. doi: 10.1111/iere.12173
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:67429
Collection:CaltechAUTHORS
Deposited By: Tony Diaz
Deposited On:27 May 2016 16:58
Last Modified:08 Sep 2017 18:28

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