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Bank Funding Cost and Liquidity Supply Regimes

Author

Listed:
  • Eric Jondeau
  • Benoit Mojon
  • Jean-Guillaume Sahuc

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.

Suggested Citation

  • Eric Jondeau & Benoit Mojon & Jean-Guillaume Sahuc, 2020. "Bank Funding Cost and Liquidity Supply Regimes," BIS Working Papers 854, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:854
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    References listed on IDEAS

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    2. Costola, Michele & Iacopini, Matteo, 2023. "Measuring sovereign bond fragmentation in the Eurozone," Finance Research Letters, Elsevier, vol. 51(C).

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    More about this item

    Keywords

    bank funding risk; bank credit spreads; liquidity supply regimes; multicurve environment; economic activity predictability;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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