Lenders Option Borrowers Option and Notional pooling: Difference between pages

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(LOBO).
''Banking''.


A long term borrowing instrument with periodic interest re-fixings, which incorporates two linked options:
The technique used by banks for calculating interest on balances in a notional cash pool.


#An option for the lender to set revised (usually higher) interest rates at predetermined interest reset dates - for example annually. This is the Lender's option.
Excess funds in the accounts of a company or its subsidiaries are used to offset deficits in other company accounts for the purpose of determining interest earned or owed.  
#A linked option for the borrower (exercisable only if the Lender’s option is exercised) either to pay the revised interest rate, or else to redeem the bond. This is the Borrower’s option.


Notional pooling is also referred to as interest offset pooling.


LOBOs have been issued for maturities of up to 50 years.


Each of the two embedded options can be complex to value with precision, potentially making the composite borrowing instrument difficult for some less sophisticated borrowers to evaluate.
== See also ==
* [[Cash pool]]
* [[CertICM]]
* [[Cross-guarantees]]
* [[Interest rate enhancement]]


 
[[Category:Long_term_funding]]
Also written 'Lender's Option Borrower's Option'.
[[Category:Cash_management]]
 
 
== See also ==
* [[Option]]

Revision as of 08:14, 29 November 2014

Banking.

The technique used by banks for calculating interest on balances in a notional cash pool.

Excess funds in the accounts of a company or its subsidiaries are used to offset deficits in other company accounts for the purpose of determining interest earned or owed.

Notional pooling is also referred to as interest offset pooling.


See also

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