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Dark MarketsAsset Pricing and Information Transmission in Over-the-Counter Markets$
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Darrell Duffie

Print publication date: 2012

Print ISBN-13: 9780691138961

Published to Princeton Scholarship Online: October 2017

DOI: 10.23943/princeton/9780691138961.001.0001

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The Case of Federal Funds Lending

The Case of Federal Funds Lending

Chapter:
(p.13) Chapter 2 The Case of Federal Funds Lending
Source:
Dark Markets
Author(s):

Darrell Duffie

Publisher:
Princeton University Press
DOI:10.23943/princeton/9780691138961.003.0002

This chapter shows how the intraday allocation and pricing of overnight loans of federal funds reflect the over-the-counter interbank market in which these loans are traded. It provides estimates of how the likelihood that some bank i borrows from some other bank j during a particular minute t of a business day, as well as the interest rate on the loan, depend on the prior trading relationship between these two banks, the extents to which their balances at the beginning of minute t are above or below their normal respective balances for that time of day, their overall levels of trading activities, the amount of time left until their end-of-day balances are monitored for reserve-requirement purposes, and the volatility of the federal funds rate in the trailing 30 minutes.

Keywords:   interbank market, federal loans, federal funds market, intraday allocation, over-the-counter market, OTC market, trading

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