Monday, March 15, 2010

Interbank markets and the financial crisis (ls)

I found an insightful article by Claudio Raddatz on the role of interbank markets during the financial crisis. He - not surprisingly -  argues: "How did a seemingly small shock to the US financial markets manage to spread so far, so quickly? [...] the heavy reliance on short-term wholesale funding is to blame".

He also produced some interesting charts. Here is one of them. Banks which are highly dependent on wholesale funding realised larger share prices declines in the days before and after the default of Lehman Brothers.