The competition between a central securities depository (CSD) and a custodian bank is analyzed in a Stackelberg model. Investor banks decide whether to use the services of the CSD or of the custodian bank, depending on the prices and their preferences for their inhomogeneous services. Since the custodian bank uses services provided by the CSD as input, the CSD can raise its rival's costs. The CSD's equilibrium market share is higher than socially optimal, unless the CSD is not allowed to charge negative prices. This result has important policy implications that are related to a discussion currently taking place in the securities settlement industry.

Cross-country bank lending appears to be subject to market imperfections leading to persistent interest rate differentials. In a model where banks need to cope with liquidity shocks by borrowing or by liquidating assets, we study the scope for international interbank market integration with unsecured lending when cross-country information is noisy. We find that an equilibrium with integrated markets need not always exist, and that it may coexist with one characterized by segmentation. A repo market reduces interest rate spreads and improves upon the segmentation equilibrium. However, it may destroy the unsecured integrated equilibrium.

This article studies access regulation to international large-value payment systems when banking supervision is national. We focus on the choice between net and real-time gross settlement. As a novel feature, the communication between the public authorities is endogenized. It is shown that the national authorities' incentives are not perfectly aligned concerning the settlement method. Therefore public regulation fails to implement the first-best access criteria. Banks prefer net settlement too often due to limited liability. Still, if banks have superior information about their counterparties, private involvement in access regulation is desirable as it reveals information to the public authorities.

This article studies access regulation to international large-value payment systems when banking supervision is national. We focus on the choice between net and real-time gross settlement. As a novel feature, the communication between the public authorities is endogenized. It is shown that the national authorities’ incentives are not perfectly aligned concerning the settlement method. Therefore public regulation fails to implement the first-best access criteria. Banks prefer net settlement too often due to limited liability. Still, if banks have superior information about their counterparties, private involvement in access regulation is desirable as it reveals information to the public authorities.

We develop a model of interbank lending and borrowing with counterparty risk. The model has two key ingredients. First, liquidity in the banking sector is endogenous, so there is an opportunity cost of holding liquid assets. Second, banks are privately informed about the risk of their long-term assets, which can lead to adverse selection and high interest rates in the interbank market. We identify a novel form of a market break-down, which can lead to liquidity hoarding. It arises because adverse selection in the interbank market changes the opportunity cost of holding liquidity. We use the model to shed light on developments in interbank markets prior to and during the 2007–09 financial crisis, as well as the effectiveness of policy interventions aimed at restoring interbank market activity.

Cross-country bank lending appears to be subject to market imperfections leading to persistent interest rate differentials. In a model where banks need to cope with liquidity shocks by borrowing or by liquidating assets, we study the scope for international interbank market integration with unsecured lending when cross-country information is noisy. We find that an equilibrium with integrated markets need not always exist, and that it may coexist with one characterized by segmentation. A repo market reduces interest rate spreads and improves upon the segmentation equilibrium. However, it may destroy the unsecured integrated equilibrium.