Large US banks rode a surge in Libor basis risk in the first quarter without ill effect.
The basis between one-month and three-month US Libor grew from 14 basis points at the start of the year to 43bp at the end of March. As of April 20, the basis was 46bp.
The widening gap caused assets and liabilities priced against each rate to diverge, with implications for banks’ net interest margins (NIM) – the difference in interest payments received and paid.
A significant portion of bank assets are