Lackluster volume from banks to lend to each other has significatly reduced the demand for LIBOR which is the interbank lending rate. Less risky to use depositers money rather than borrow from other banks at the LIBOR rate. The question is what would be the alternative index. (WSJ)

An article in The Economist “Fat-tail attraction”, discusses hedging for worst case scenarios. Borrowers who are floating at historically low interest rates may want to consider buying disaster insurance in the form of an interest rate cap against the borrowing index. Interest rate caps can be used to hedge LIBOR, PRIME or SIFMA.

Most of us knew that at the height of the financial crises, there was something up with how LIBOR was being set. Many articles have since been published, but it appears the Fed is finally taking a closer look.  Source WSJ 3-17-11

Many tax-exempt bonds have 20-30 year maturities, however the credit enhancement with a letter of credit is generally for 5 years. Many bond issuers are finding their borrowing costs higher with the renewal of their letter of credit. Click here to read a WSJ article about tax-exempt bonds enhanced with a letter of credit.

An interesting article from the New York Times, “A Secretive Banking Elite Rules Trading in Derivatives” on the incentive for leading banks to control the over-the-counter derivatives market and the proposed clearinghouses.  Cardea Partners helps our clients combat this natural disadvantage in the marketplace and reduces the unseen fees of such swaps transactions by creating transparency and competition. (NY Times, December 12, 2010)