However, to verify if less contagion losses arise, calibrating assets other than
interbank loans becomes necessary because imposing an interbank limit as a share of capital would not trigger a contagion process at all using the existing mechanism.
This method relies on the premise that all
interbank loans will eventually result in a converse payment between financial institutions in the large-value payment system.
Efficiency and Bargaining Power in the
Interbank Loan Market.
According to data compiled by the newspaper, used as the source for the article, the big four UK banks cut
interbank loan volumes by more than 24% to 10.
The
interbank loans are cheaper and freely available in the market place as the 3- month Libor rate stood at 26 basis points by the end of last week.
After controlling for counter-party risk using the spread between unsecured and secured
interbank loans (Libor less the Repo rate), we found very little evidence that the TAF program has affected the spread.
Interbank loans require their own regulatory capital which must be subtracted from the capital available to sustain commercial loans.
On average, over one-third of the Saudi banks' assets can be considered liquid (in the form of cash, typically short-term
interbank loans or investments).
Fear that fellow banks won't repay
interbank loans.
The FDIC will provide new, temporary insurance for
interbank loans, intended to overcome the crisis of confidence between banks.
Despite financial intervention from government, there seems to be a general unwillingness among lenders to provide mortgage finance priced in line with the sharp downward movements we have already seen in bank rate, the LIBOR rate on
interbank loans, and other money market rates.
Indicative of the problem, rates on overnight
interbank loans have recently shot skyward.
