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What is driving LIBOR

The has been a lot of attention given lately to the decline in the cost of borrowing
in dollars between banks. Most people associate this with rising confidence in the financial community. The multi year lows we are experiencing in 3 month LIBOR to me seem counter intuitive and may not be telling us the full story. Some interesting data I saw recently showed the drop in LIBOR has been highly correlated with a sharp increase in customer deposits at US commercial banks. The increases in deposits are likely reducing the demand for inter-bank lending thus driving down the offered rate. Tough to quantify the impact but it makes more sense to me then LIBOR below 1% in this market.