Using a stylised financial system along with a systemic perspective thereof, the definition of an aggregated banking system that is default-free but vulnerable to liquidity risks is enabled. Within this setup, a consistent mathematical modelling framework for term interest rate systems is derived that enables the pricing and valuation of associated linear derivative instruments. It is then demonstrated that term rates may not be synthetically replicated, in general, which in turn enables the extraction and explanation of the genesis of term risk. These findings provide: (i) a rigorous understanding of the incomplete market paradigm that encapsulates inter-bank term rates and the risk management processes involved therein; and (ii) quantitative theoretical evidence against global interest rate reform proposals advocating for the replacement of term Libor (London inter-bank offered rate) reference rates with overnight rate-based alternatives
