Journal of Financial Market Infrastructures

Risk.net

Identification of interbank loans and interest rates from interbank payments: a reliability assessment

Mats Bay Fevolden, Lyndsie Smith and Q. Farooq Akram

  • Can a suitable "Furfine filter" identify overnight interbank loans and interest rates from settlement system data?
  • This is investigated using survey data from participants in Norges Bank’s settlement system
  • A Furfine filter incorporating quoting conventions regarding loans and interest rates correctly identifies all interbank loans and corresponding interest rates

We investigate the reliability of the “Furfine filter” often used to identify interbank loans and interest rates from interbank payments settled at central banks. To this end, we have been granted access to records of all unsecured overnight interbank loans during one month from the banks that participated in Norges Bank’s real-time gross settlement system. The filter applied was able to identify each of these loans and correctly derive the associated interest rates. The filter’s reliability is supported by additional evidence based on the Norwegian overnight weighted average (NOWA) interest rates beyond the survey month. Sensitivity analyses suggest the share of false or overlooked loans may remain small if the filter design incorporates interbank market conventions regarding loan size requests and interest rate quotes.

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