"...by teaching them not to believe in the gods in whom the city believes, but in other new things."
The market rally is probably because the equities people think the chances of systemic failure have declined, that is, they think the sharemarket will still be open in a few weeks.
LIBOR serves as the basis of many thousands of private sector contracts, and that the banking system as a whole is a net receiver of LIBOR-indexed funds. To the degree that LIBOR does not reflect banks effective cost of funds, an elevated rate can be viewed as a hidden tax of the nonfinacial [sic] sector by banks. Rather than reflecting the banking system's pain, a high LIBOR might indicate banks' ability to leverage their collective insolvency to charge higher rates on nonfinacial firms without complaint.
...since US banks can borrow from the Fed's discount window at the Federal Funds rate + 25 basis points, while adjustable rate loans from banks are often indexed to LIBOR, a simpler way to think of the LIBOR-OIS spread is as a measure of the difference between the cost to banks of central bank money and rate they charge on private loans. Put this way, it is hard to understand why banks are upset that this indicator is elevated.
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