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The unsecured interbank money market: A description of the Portuguese case

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  • Sofia Saldanha

Abstract

Money markets were severely impaired by the financial and subsequent sovereign debt crises. Although the euro money market has been studied substantially, little has been done for the particular case of Portugal. This thesis investigates how the Portuguese part of the euro unsecured interbank money market was affected by the two consecutive crises. I constructed and adapted a Furfine-based algorithm to identify the loans traded and settled in TARGET2, in which a least one of the counterparties is a Portuguese bank. Identified loans have overnight and one-week maturities. Data shows a clear trend towards a closed interbank money market. In addition, there is a visibly significant reduction in the number of times banks trade in the market, accompanied by a parallel drop in volumes transacted. Finally, I find that interest rates rise above the benchmark and those in the domestic market are persistently higher than rates agreed upon through cross-border operations.

Suggested Citation

  • Sofia Saldanha, 2016. "The unsecured interbank money market: A description of the Portuguese case," Working Papers w201615, Banco de Portugal, Economics and Research Department.
    • Handle: RePEc:ptu:wpaper:w201615
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    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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