DP6635 Does Interbank Borrowing Reduce Bank Risk?

Author(s): Valeriya Dinger , Jürgen von Hagen

Publication Date: January 2008

Keyword(s): interbank market , bank risk , market discipline , transition countries

JEL(s): E53 , G21

Programme Areas: International Macroeconomics

Link to this Page: www.cepr.org/pubs/dps/DP6635.asp.asp

In this paper we investigate whether banks that borrow from other banks have lower risk levels. We concentrate on a large sample of Central and Eastern European banks which allows us to explore the impact of interbank lending when exposures are long-term and interbank borrowers are small banks. The results of the empirical analysis generally confirm the hypothesis that long-term interbank exposures result in lower risk of the borrowing banks.