Dissecting interbank risk using basis swap spreads Articles uri icon

publication date

  • March 2020

start page

  • 729

end page

  • 757


  • 3


  • 43

International Standard Serial Number (ISSN)

  • 0378-5920

Electronic International Standard Serial Number (EISSN)

  • 1467-9701


  • This paper analyses interbank risk using the information content of basis swap (BS) spreads, floating‐to‐floating interest rate swaps whose payments are associated with euro deposit rates for alternative tenors. To identify the impact of shocks affecting interbank risk, we propose an empirical model that decomposes BS quotes into their expected and unexpected components. These unobservable constituents of BS spreads are estimated by solving a signal extraction problem using a particle filter. We find that expected components covariate with aggregate liquidity and risk aversion while systemic risk arises as the main driver behind unexpected fluctuations. Our empirical findings suggest that macroprudential analysis emerges as a key device to ease asset pricing in a new multi‐curve scenario.


  • basis swap; interbank risk; liquidity; particle filter; systemic risk