Quantity adjustment on the unsecured interbank forint deposit market

Abstract

On the unsecured interbank markets, if a bank perceives that a counterparty has an increased default risk, it can respond by raising the interest rate (price adjustment) and reducing the amount of loan available (quantity adjustment). In the interbank deposit market, the most important factor is clearly quantity adjustment rather than price adjustment. For a deeper explanation of the quantity adjustment, we examined the concentration of lending and borrowing in a database covering all interbank transactions between 2012 and 2015. Both the Gini and Herfindahl-Hirschman indices showed that borrowing was more concentrated than lending in terms of both volume and number of transactions. Loans were provided by an average of 10-15 active banks typically to only 5-8 borrowers in the period examined. We tested this observation by using a two-sample z-test to compare expected values and confirmed a significant difference in concentration between the borrowing and lending sides of the interbank market. The more even distribution of the lending transactions can be explained by the fact that structural liquidity surplus was typically experienced in the Hungarian interbank market. The high concentration of the borrowing transactions derives from the partner limits.