Funding, wealth transfer and financial stability in the post-Libor era

Adjusting RFR with a funding premium may aid economic growth and stability


Stefano Iabichino and Christian Kappen examine the heir to the London Interbank Offered Rate and the candidates vying to become its funding add-on, focusing on wealth transfer and financial stability. They show that using a risk-free rate (eg, the Secured Overnight Financing Rate) without a funding premium would maximise wealth transfer, posing a systemic threat to financial stability. However, they find a funding add-on that could exclude wealth transfer, enhance

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