Funding, wealth transfer and financial stability in the post-Libor era
Adjusting RFR with a funding premium may aid economic growth and stability
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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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