Research uncovers reasons for interbank spreads

The recent sharp rise in the risk premium contained in three-month interbank rates points to the importance of liquidity factors for banks' day-to-day quoting behaviour, research published by the Bank for International Settlements finds.

The research shows that the absence of a close relationship between the risk of default and risk premia in money markets, along with interbank markets' reactions to central bank's liquidity provisions, goes some way to explaining to the rise, which has occurred

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