Libor transition raises basis risk fear

Shift to secured benchmark could cause dislocation between bank funding and lending rates

Bank treasurers walk a tightrope, balancing the lender’s interest-bearing assets with the liabilities that fund this business. But this high-wire act is under threat from US authorities’ decision to develop a new benchmark as an alternative to the long-established global fixing, Libor.

While new assets transition to a new secured rate, sources of bank funding will remain linked to an unsecured, Libor-like rate. Treasurers fear a market shock could decouple these rates and leave banks exposed to

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