LIBOR is due to die in 2021. Hurry up and drop it, say regulators

JUST DROP off the key. Yes, it means breaking a complicated yet rewarding long-term relationship: $240trn-worth of derivatives, loans and bonds are priced off LIBOR, the London Interbank Offered Rate; $200trn-odd are in dollars alone. But this key interest rate is due to die. Almost two years ago Andrew Bailey, the head of Britain’s Financial Conduct Authority (FCA), LIBOR’s regulator, in effect said it would expire at the end of 2021. In recent days American and British supervisors have again urged banks: hop on the bus.

A few years ago LIBOR was undermined by a rate-rigging scandal which highlighted ills that might anyway have proved fatal. Notionally, it is the rate at which banks can borrow from each other, for up to a year, in dollars, sterling, Swiss francs, yen and euros. It is calculated from daily submissions of panels of 11 to 16 banks. But banks now scarcely tap interbank markets. On June 5th Sir Dave Ramsden, a deputy governor of the Bank of England, said that in the first quarter of 2019 on average only nine deposits totalling just £81m ($105m) a day underpinned six-month sterling LIBOR.

Regulators want markets to move to new benchmarks based on overnight rates and a far richer seam of transactions. America’s Alternative Reference Rates Committee (ARRC), a group of market participants convened by the...

via The Economist: Finance and economics Business Feeds

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