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Burying Libor

Author

Listed:
  • Sven Klingler
  • Olav Syrstad

Abstract

We argue that the planned transition toward alternative benchmark rates gives reason to mourn Libor. Guided by a model in which banks and non-banks can lend to each other, subject to realistic regulatory constraints, we show empirically that tighter financial regulation increases interbank rates but lowers broad rates (in which lenders are non-banks) and that all market rates increase with more Treasury bill issuance. Hence, the proportion of non-bank lenders affects the alternative rates, introducing variation in the benchmark that is unrelated to banks’ marginal funding costs and creating a basis between regions with interbank rates and broad rates.

Suggested Citation

  • Sven Klingler & Olav Syrstad, 2019. "Burying Libor," Working Paper 2019/13, Norges Bank.
    • Handle: RePEc:bno:worpap:2019_13
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    File URL: https://www.norges-bank.no/en/news-events/news-publications/Papers/Working-Papers/2019/132019/
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    More about this item

    Keywords

    Benchmark rates; financial regulation; Libor; repo rates; collateral;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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