LIBOR Transition Raises Basis Risk Fear

June 26, 2018 Chatham Financial

 

 

 

 

Chatham Financial's Todd Cuppia is quoted in a Risk article about the transition from LIBOR to SOFR, and how the shift to a secured benchmark could cause dislocation between bank funding and lending rates.

When asked about the lack of legal certainty over individual contracts in the cash market pushing assets into a state of limbo, Todd replied, "The other risk is if there’s a stalemate on any individual contract, then it will just promote the stranded asset bucket that existed after the last financial crisis where there were assets that had no bid. If a cash product doesn’t transition because of some disagreement between the two stakeholders of the contract, then there could be a stalemate reaction on that side. It’s certainly possible that there could be disputes between parties on this transition."

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