Trading Partners in the Interbank Lending Market

Afonso, Gara M.; Kovner, Anna; Schoar, Antoinette

Report

Trading Partners in the Interbank Lending Market

Abstract: 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.

Keywords: interbank lending; OTC markets;

JEL Classification: D40; G10; G21; E59;