Interbank Crisis Exacerbates Liquidity Restrictions, Impacts Cross-Border Lending Prices
The article examines how financial crises and monetary policy affect the supply of wholesale funding liquidity in the Euro Area interbank market. By analyzing data from the European interbank dataset and crisis events like Lehman and sovereign debt crises, the researchers found that crisis shocks lead to restricted access, lower volumes, and higher spreads in interbank lending. Cross-border lending was particularly affected after the Lehman failure, with banks in periphery countries experiencing stronger impacts during the sovereign debt crisis. Price dispersion among lenders increased significantly during crises, especially for riskier borrowers.