ABSTRACT
Under current market conditions, banks are no longer default-free and one should take a bilateral counterparty risk perspective. Since it makes no sense to assume that a default-risky bank can lend and borrow cash at a common and risk-free rate, a companion issue is a proper assessment of the cost for the bank of funding its position. This question has become a major concern for the industry, reflected for instance in Piterbarg (2010), Morini and Prampolini (2011), Burgard and Kjaer (2011a,2011b, 2012), Hull and White (2013b, 2013a, 2013c, 2013d) or Castagna (2011).
