The interbank market is a market in which banks trade with each other and complete transactions.
Trading usually takes place in the form of loans, securities, derivatives or foreign exchange. An important segment of the interbank market is money market transactions, in which banks engage in short-term lending with maturities ranging from one day to one year.
The interbank market is of great importance for the functioning of the banking system, as it enables banks to bridge short-term liquidity bottlenecks and optimise their financing. By trading with each other, they can balance their balance sheets and raise capital to lend or invest.
However, the interbank market can also be very susceptible to disruptions, such as in the 2008 financial crisis, when trust between banks plummeted and liquidity became scarce. As a result, many banks were forced to rethink their business models and improve their risk management systems.
Overall, the interbank market is an important part of the financial system and contributes to the stabilisation and financing of the economy. However, the risks and weaknesses of this market need to be constantly monitored and regulated to ensure smooth functioning.
