Time: 13:00-15:00 (UK Time), Wednesday, 23 February 2022
Presenter: Mrs Esmie Kanyumbu, Reserve Bank of Malawi & Loughborough University
Chair: Professor Victor Murinde, SOAS University of London
Online venue: Click here to join the seminar on Microsoft Teams (For any inquiry about how to join the online seminar, please contact Dr Meng Xie: xm1@soas.ac.uk)

Abstract
Interbank markets are one of the most important markets for banks within their intermediation role. One unique aspect of these markets is that loans are both collateralized and uncollateralized. Consequently, trading in interbank markets depends on trust that banks have for each other. Interbank markets are therefore associated with peer monitoring and market discipline. Such market discipline is reflected in the ability of individual banks to access funds in this market but also the rates at which they borrow from the market. Based on existing empirical literature, riskier banks are less likely to access interbank loans as a source of liquidity and are likely to pay more than safe banks when accessing funds in this market. Although the need to have a reliable interbank market disciplining mechanisms has gained support, especially following the 2007-2008 Global Financial Crisis, literature on how banks respond to such market disciplining mechanism in terms of their risk-taking behaviour remains sparse. This study fills this gap by assessing the effectiveness of this market discipline on bank risk-taking behaviour. The study uses quarterly bank-level data for banks operating in Malawi from 2010:Q1 to 2018Q:4 to investigate the role of interbank market disciple on credit risk and solvency risk of banks and applied Hausman-Taylor panel approach for estimation. The results confirm that interbank market discipline plays a role in risk-taking behaviour of banks. However, the direction of the impact of interbank market discipline on bank risk is different for the two types of bank risks. While banks with higher exposures to the interbank market show low levels of credit risk, such banks show a higher probability of bank failure. These important yet mixed effects of interbank market discipline on bank risks are useful to regulators in setting regulatory priorities that complement, support or counteract the effects of interbank discipline.

Presenter

Esmie Kanyumbu is a senior analyst at the Reserve Bank of Malawi (RBM) and she is responsible for facilitating and recommending ways of developing and deepening the financial market in Malawi. This includes carrying out research on topical financial development issues in order to recommend policy changes and introduction of new financial products, services and players in the market. Esmie is therefore experienced in carrying out research on interbank markets and linking developments in the interbank market to the implementation of monetary policy and financial stability issues, among other things. She has been exposed to different divisions of the RBM for the past 12 years and has accumulated experienced in banking system liquidity forecasting, financial markets analysis, monetary policy analysis and implementation, global markets research, financial stability, financial markets development and risk management.

Esmie is an established researcher within the African Economic Research Consortium (AERC) and held a Visiting Scholar position at the IMF in Washington DC in 2018. Esmie is also a research fellow at the Southern Africa Institute for Economic Research (SAIER). Her research interests include Interbank markets, financial inclusion, financial markets development, monetary policy, financial stability and international trade and finance.

Esmie is currently a PhD Researcher at Loughborough University in the United Kingdom. She holds an MA in Economics and a Bachelor of Social Science degree, both from the University of Malawi.