Following the collapse of Lehman Brothers in September 2008, global risk spiked and the world witnessed a collapse in cross-border funding between banks. On closer inspection, however, not all countries’ banking systems experienced a withdrawal of cross-border finance. In fact, a number actually enjoyed an inflow of funding from banks overseas (Figure 1).
The two faces of cross-border banking flows: An investigation into the links between global risk, arms-length funding, and internal capital markets
Dennis Reinhardt, Steven Riddiough, 7 May 2014
What happened to US interbank lending in the financial crisis?
Gara Afonso, Anna Kovner, Antoinette Schoar, 26 April 2010
Borrowing in the interbank market is the most immediate source of bank liquidity and, aggregate activity in the market can therefore be an important indicator of the functioning of the banking market. Problems in this market can lead to insufficient bank liquidity and thus to inadequate allocation of capital and risk sharing between banks.
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