Pollock: Shift from viewpoint of the borrower
Alex J. Pollock | Financial Times
July 05, 2012

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Article Highlights

  • The process of setting Libor is showing its age

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  • Libor: should shift from viewpoint of the interbank borrower to that of the lender

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  • Libor is the offered rate, not the bid

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Financial Times: Letters
From Mr. Alex J Pollock

Sir, The process of setting Libor is showing its age, as well as its vulnerability to human weakness in a crisis.

The process might be immediately improved by shifting from the viewpoint of the interbank borrower to that of the lender. Its respondents should be asked: "At what interest rate will you lend in the interbank market to prime banks?" as opposed to asking at what rate they can borrow.

By its very name, Libor is the offered rate, not the bid.

Alex J. Pollock
Resident Fellow
American Enterprise Institute
Washington, DC, USA

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About the Author

 

Alex J.
Pollock
  • Alex Pollock joined AEI in 2004 after thirty-five years in banking. He was president and chief executive officer of the Federal Home Loan Bank of Chicago from 1991 to 2004. He is the author of numerous articles on financial systems and the organizer of the “Deflating Bubble” series of AEI conferences. In 2007, he developed a one-page mortgage form to help borrowers understand their mortgage obligations. At AEI, he focuses on financial policy issues, including housing finance, government-sponsored enterprises, retirement finance, corporate governance, accounting standards, and the banking system. He is the lead director of CME Group, a director of Great Lakes Higher Education Corporation and the International Union for Housing Finance, and chairman of the board of the Great Books Foundation.

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  • Phone: 2028627190
    Email: apollock@aei.org

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    Phone: (202) 419-5212
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