  Interbank lending and borrowing occur when financial institutions seek to
settle and refinance their mutual positions over time and circumstances. This
interactive process involves money creation at the aggregate level.
Coordination mismatch on interbank credit may trigger systemic crises. This
happened when, since summer 2007, interbank credit coordination did not longer
work smoothly across financial institutions, eventually requiring exceptional
monetary policies by central banks, and guarantee and bailout interventions by
governments. Our article develops an interacting heterogeneous agents-based
model of interbank credit coordination under minimal institutions. First, we
explore the link between interbank credit coordination and the money generation
process. Contrary to received understanding, interbank credit has the capacity
to make the monetary system unbound. Second, we develop simulation analysis on
imperfect interbank credit coordination, studying impact of interbank dynamics
on financial stability and resilience at individual and aggregate levels.
Systemically destabilizing forces prove to be related to the working of the
banking system over time, especially interbank coordination conditions and
circumstances.
