Saturday, September 13, 2008


Willem Buiter looks at the endgame in the banking system.
[i] The OIS rate is the fixed leg of a swap whose variable counterpart is the daily compounded return of some safe or secured benchmark rate on overnight transactions. Typically, the overnight benchmark is the weighted average of the central bank rate. In the US this would be the Federal Funds Effective rate. In the UK it is SONIA, in the euro area EONIA. Libor is the benchmark rate supposed to representative of the interest rates at which banks offer to lend unsecured funds to each other in the London wholesale money market (or interbank market).

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