Burying Libor

Sven Klingler and Olav Syrstad

No 2019/13, Working Paper from Norges Bank

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.

Keywords: Benchmark rates; financial regulation; Libor; repo rates; collateral (search for similar items in EconPapers)
JEL-codes: E43 G12 G18 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2019-08-09
New Economics Papers: this item is included in nep-ban, nep-cba and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:bno:worpap:2019_13

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