Template-Type: ReDIF-Paper 1.0
Author-Name: Eric Jondeau
Author-X-Name-First: Eric
Author-X-Name-Last: Jondeau
Author-Name: Benoit Mojon
Author-X-Name-First: Benoit
Author-X-Name-Last: Mojon
Author-Name: Jean-Guillaume Sahuc
Author-X-Name-First: Jean-Guillaume
Author-X-Name-Last: Sahuc
Title: Bank Funding Cost and Liquidity Supply Regimes
Abstract: Designing operations for liquidity support requires central banks to properly measure and monitor bank funding risk in real time. We construct a new indicator of rollover risk for banks, called the forward funding spread. By accounting for market participants' expectations of how funding costs will evolve over time, it serves as a better signal of the change in the stance of monetary policy than the usual spot InterBank Offered Rate-Overnight Interest Swap spread. Our indicator helps to contrast three liquidity regimes, which coincide with the levels of excess liquidity supplied by central banks.
Length: 47 pages
Creation-Date: 2020-04
File-URL: https://www.bis.org/publ/work854.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work854.htm
File-Format: text/html
Number: 854
Classification-JEL: E32, E44, E52
Keywords: bank funding risk, bank credit spreads, liquidity supply regimes, multicurve environment, economic activity predictability
Handle: RePEc:bis:biswps:854