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Chapter Eight
Financial Markets
Introduction
8.1. This chapter covers market-based FSIs required for assessing the health of the
financial system. The chapter is divided into two sections: interest rates and security market
indicators. The interest rate FSIs provide information on the interest rates charged by and to
deposit-takers, so providing an indication of profitability and competitiveness in the banking
sector, along with information on the spread in inter-bank rates that can provide early
indications of credit risk concerns among deposit-takers. The security market FSIs provide
information on the liquidity of the security markets in which deposit-takers are active, and on
which they can partially rely to help manage their liquidity.
I.
Interest rates
Introduction
8.2. To support the monitoring of the financial health and soundness of deposit-takers, the
Guide encourages the compilation of two interest-rate based FSIs: the spread between
reference lending and deposit rates (SLDR), and the spread between the highest and lowest
interbank rate (SIR).
8.3. Spreads between lending and deposit rates can serve as indicators of trends in
deposit-takers’ net interest income, and hence of profitability. The interest spread can also
provide information on deposit-takers’ pricing behavior. However, further information
would be required to understand the causes of such behavior, such as a sectoral
disaggregation and a peer group analysis of spreads.
8.4. Interest rate spreads such as those between borrowers with different credit risk
profiles, can serve to indicate the level of perceived risk within the financial system. So, the
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spread between the highest and lowest interbank rate would help to capture banks’ own
perception of problems and risks facing banks with access to the interbank market.160
Measuring the spread between reference lending and deposit rates (SLDR)
8.5. There is no standard definiti