Is the increased gap between Libor and overnight rates a Machiavellian scheme, where liquid banks are forcing up Libor to earn extra cash on products that are indexed against this measure of money market rates? Can the central banks do anything to stop banks hoarding cash and so close the gap? Are the money markets broken? The probable answer to all these questions is no.
Distrust and concern at the level of Libor is understandable. The gap between Libor and overnight rates remains nearer 100 basis points...
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