Cyril Monnet

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Relationships in the Interbank Market

Staff Working Paper 2016-33 Jonathan Chiu, Cyril Monnet
The market for central bank reserves is mainly over-the-counter and exhibits a core-periphery network structure. This paper develops a model of relationship lending in the unsecured interbank market. In equilibrium, a tiered lending network arises endogenously as banks choose to build relationships to insure against liquidity shocks and to economize on the cost to trade in the interbank market.

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