When there are not enough Baskets to put your Eggs in- A Study of a Sample Bank Bond Portfolio on the Swedish Interbank-market

Abstract

This thesis explores the Swedish interbank-market, with empirical material from a sample bank, by conducting a qualitative interview as well as modelling probabilities of defaults in the sample bank bond portfolio. From the interview, we seek whether there is a rationale for investing in other financial institutions while also examining the effects of investing in your own industry with the modelled probabilities of defaults. By analyzing the qualitative and quantitative data, we find that the core of the rationale is that the sample bank is limited by the undiverse supply of bonds on the Swedish interbank-market, and that the financial institutions increase the risk in the portfolio in terms of probabilities of defaults. Conclusively, if the target is to minimize the risk in the portfolio, a financial institution on the Swedish interbank-market should avoid investing in other financial institutions.