What is it about?
Banks make money inter alia on interest coming from transformation of short term liabilities to long term assets. In Poland assets are mostly referenced to WIBOR benchmark that is not correlated with a real cost of deposits. This phenomenon is observed since the financial crises of 2008. In effect, banks is adversely affected if cost of liabilities drops slower than the benchmark does. We analyse the scale of this dependence.
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Why is it important?
Banks and regulators should be aware of benchmark inefficiency in order to perform activities leading to financial indices reform in line with EU Benchmark Regulation (BMR). . One should be aware that local specifics comes from extremely high dependence of the Polish economy on WIBOR benchmark, as vast majority of loans is repriced on floating terms.
Perspectives
I was especially keen on checking how transactional data related to cost of deposits collected by banks behave in comparison to benchmark determining income from long term loans. The empirical evidence shows that WIBOR is divergent with cost of funds. It is consistent with an observation from Eurozone markets.
prof. Piotr G. Mielus
Szkola Glowna Handlowa w Warszawie
Read the Original
This page is a summary of: Basis Risk and Net Interest Income of Banks, Folia Oeconomica Stetinensia, January 2016, De Gruyter,
DOI: 10.1515/foli-2016-0024.
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