Burying LIBOR

35 Pages Posted: 6 Jun 2019 Last revised: 11 Aug 2019

See all articles by Sven Klingler

Sven Klingler

BI Norwegian Business School

Olav Syrstad

Norges Bank

Date Written: August 9, 2019

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

JEL Classification: E43, G12, G18

Suggested Citation

Klingler, Sven and Syrstad, Olav, Burying LIBOR (August 9, 2019). Available at SSRN: https://ssrn.com/abstract=3390856 or http://dx.doi.org/10.2139/ssrn.3390856

Sven Klingler (Contact Author)

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Olav Syrstad

Norges Bank ( email )

P.O. Box 1179
Oslo, N-0107
Norway

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