Nov 11, 2024
Conceptually it is the difference between the rate one would seek in lending to a bank versus the sovereign
Bank lending rates can be replicated using swap rates and hence are essentially a derivative
lending to sovereign of course requires balance sheet
so if swap rates are in -ive territory, it indicates balance sheet stress
of course, central bank can come in and relieve
so you can get more yield lending to sovereign
because that would involve tying up balance sheet
Morgan Stanley coined the term “rent on balance sheet” in 2009
For background please refer to links:
