The Interbank Market

What is The Interbank Market

The interbank market is the market for interbank loans . Like the debt securities market, the interbank market is a component of the money market . The interbank market is reserved for credit institutions which can carry out all the transactions that interest them (amount, duration, rate, terms)

Short-term interest rates are formed in this market where the supply and demand for bank liquidity meet. Credit institutions that have cash surpluses intervene in the interbank market as “lenders” while those that are in deficit act as “borrowers”. The Public Treasury acts mainly as a borrower to finance the State. To do this, it issues “BTV” or Variable Rate Treasury Bonds, the term of which is generally between zero and two years and the main beneficiaries of which are interbank market participants.

The interbank market allows the redistribution of liquidity between banks and cash adjustments between banks.

The regulation of bank liquidity is ensured by the central bank

The regulation of bank liquidity is carried out through open market operations , standing facilities and minimum reserves.

The ECB announces to the main operators of the market that it is launching a call for tenders. Each operator lists requests from financial institutions indicating the amounts they wish to borrow and the rates they are prepared to pay. Depending on the call for tenders rate and the amounts it has decided to distribute, the ECB allocates the amount of money allocated to each of the main operators.

The LIBOR rate and the EURIBOR rate are quoted.

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