The severity of the recent subprime crisis has taken many economists and nancial market participants by surprise. One of the most remarkable symptoms of the crisis was the observed strain in interbank money markets, showing up in sharply increasing money market rates. The rates for unsecured and secured lending diverged tremendously. Interpreting the spread of these rates (the repo spreads) as risk premia for interbank lending, the crisis appears to have led to a massive decline in the banks' (perceived) creditworthiness.

Interestingly, repo spreads did not only increase, but they also became highly correlated across di erent regions (US, UK and euro area) during the turmoil. This paper investigates whether the observed rise in correlations is due to a contagion e ect among interbank money markets. In fact, it is frequently argued that the problems underlying the recent nancial turmoil originated in the United States and spilled over to other regions worldwide. The role of interbank money markets in this process will be discussed.