The Vegvisir

The purpose of this post is to briefly surmise LIBOR and its history, explain why a transition to SONIA is taking place and briefly introduce SONIA.  What is LIBOR? The London Interbank Offered Rate is a benchmark interest rate at which major global banks lend to each other in the international inter-bank market for short-term loans. It indicates the borrowing costs between banks and is calculated and published by the Intercontinental Exchange (AKA ICE)  It is based on the following currencies: USD, GBP, EUR, JPY and CHf It is available on different maturities: overnight / spot / next / one week / one month / two months / three months / six months / twelve months The combination of those five currencies and seven different maturities leads to a product of 35 different LIBOR rates being calculated and reported each business day. The typical quoted rate is the 3m U.S. dollar rate - commonly known as the current LIBOR rate How is LIBOR calculated?  LIBOR is calculated by the ICE through a

A summary of negative interest rates Typically employed as a last resort when faced with deflationary pressure or a very weak growth of the economy A monetary policy tool designed to penalize savings and holding of cash and incentive banks to loan out cash  Commercial or retail banks would be charged for holding their cash with the central bank  Some economists argue that negative interest rates are a unsustainable tool and can cause detriment to the economy if used over the long term Can sometimes be effective in preventing deflation within an economy and get back to more healthy economic environment such as the case with Sweden  Introducing negative interest rates With interest rates at an all time low this places a lot of pressure on retail and commercial banks to make money through the net interest margin - but with the global economy as it is with many economies reporting significant contractions in GDP terms could economies go further down the line to utilization of negative inte