The title says it all: Systemically important banks get better terms for their overnight borrowing

Basically, they get a hold of a really nice data set from the Central Bank of Norway that covers a three year period that includes the recent financial crisis (i.e., 2006-2009) and using a panel data econometric model they find that banks who occupy key positions within the interbank network in Norway were able to use this position to get better deals on interest rates for their overnight borrowing/lending. They also found that interest rates depended not only on the total amount of market liquidity, but also on the distribution of that liquidity amongst the market participants. This suggests that banks with surplus liquidity are able to exploit this market power in order to get beneficial rates. Finally they find that the aforementioned effects on interest rates were stronger during the recent financial crisis than in the period leading up to it.

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## Monday, September 13, 2010

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