Identification of interbank loans and interbank payment interest rates: an assessment of reliability

Identification of interbank lending and interbank payment interest rates: an assessment of reliability – Journal of Financial Market Infrastructures

  • Can an appropriate “Furfine filter” identify overnight interbank lending and interest rates from settlement system data?
  • This is investigated using survey data from participants in the Norges Bank settlement system.
  • A Furfine filter integrating the loan and interest rate quotation agreements correctly identifies all interbank loans and the corresponding interest rates

We study the reliability of the “Furfine filter” often used to identify interbank loans and the interest rates of interbank payments settled with central banks. To this end, we had access to the records of all unsecured overnight interbank loans for a month from the banks that participated in Norges Bank’s real-time gross settlement system. The filter applied made it possible to identify each of these loans and correctly deduce the associated interest rates. The reliability of the filter is supported by additional evidence based on Norwegian overnight weighted average interest rates (NOWA) beyond the month of the survey. Sensitivity analyzes suggest that the share of bogus or neglected loans may remain low if the filter design incorporates interbank market conventions regarding loan size requests and interest rate quotes.

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