Discipline and Liquidity in the Interbank Market

@inproceedings{King2008DisciplineAL,
  title={Discipline and Liquidity in the Interbank Market},
  author={Thomas B. King},
  year={2008}
}
Using 20 years of panel data, I demonstrate that high-risk banks have consistently paid more than safe banks for interbank loans and have been less likely to use these loans as a source of liquidity. The economic importance of this effect was relatively small until the mid-1990s, when regulatory and institutional changes began to impose more of the costs of bank failure on uninsured creditors. Subsequently, interbank-market price discipline roughly doubled, and risk-based rationing effects… CONTINUE READING

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