Interbank Market. Why do you think it is important for many of the world‘s largest commercial and investment banks to be considered on the run in the interbank market?
One of the traditional attributes of the on-the-run interbank market was the ability of the top tier banks to lend and transact amongst themselves internationally without distinguishing credit quality. It allowed “tiering” in the interbank market, which had proven over time to be fast and efficient for the conduct of international financial transactions.
The interbank market has historically operated, on its highest levels, as a no-name market. This meant that for the banks at the highest level of international credit quality, interbank transactions could be conducted without discriminating by name. Therefore, they traded among are themselves at no differential credit risk premiums. A major money center bank trading on such a level was said to be trading on-the-run. Thus, on-the-run banks are viewed to have steadfast credit quality. Banks that are not on-the-run are considered to be of less credit quality, sometimes reflecting more country risk than credit risk, and pay slightly higher rates in the interbank market