Understanding the cost difference between intraday and overnight liquidity

Date
2008-11-01
Authors
Bhattacharya, Joydeep
Haslag, Joseph
Martin, Antoine
Journal Title
Journal ISSN
Volume Title
Publisher
Altmetrics
Authors
Research Projects
Organizational Units
Economics
Organizational Unit
Journal Issue
Series
Abstract

In most countries, the cost of reserves intraday is very close to zero. Many central banks, including the European Central Bank (ECB), the Bank of England, or the Swiss National Bank allow collateralized intraday borrowing at no cost. In the U.S., banks are allowed to incur uncollateralized daylight overdrafts for which they incur a small fee2. In contrast, most countries rely on a positive marginal cost of overnight reserves for the implementation of their monetary policies. In the Euro Area, the cost is at least as large as the difference between the policy rate and the rate the ECB pays on reserves deposited by banks, which is 100 basis points. In the U.S., the cost corresponds to the Fed funds target, since the Fed does not pay interest on reserves.

Description

This article is published as J. Bhattacharya, A. Martin and J. Haslag. Understanding the cost difference between intraday and overnight liquidity, Journal of Financial Transformation, 24, 105-107, 2008.

Keywords
Citation
DOI
Source
Collections