Interbank Market Integration under Asymmetric Information
Review of Financial Studies
2005
open access
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.
- DOI
- 10.1093/rfs/hhi001
- Volume
- 18 (2)
- Pages
- 459-490
- Language
- en
- Export
- BibTeX
- Sources
- openalex crossref