Euromoney, is part of the Delinian Group, Delinian Limited, 8 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2023
Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement
CAPITAL MARKETS

Libor: Changing the frame of reference

There’s a rush to find an alternative to ‘ibors’, but with just three years to go before banks might stop submitting Libor altogether, regulators and market participants are still trying to figure out the right questions to ask.

framing-digital-hands-illo-780

The man who stuck the first knife into the London interbank offered rate still thinks it is better than any alternative. 

It was easily manipulated. It may even be inherently fictional. But proposed alternatives to Libor, the benchmark that serves as a reference rate for some hundreds of trillions of dollars in financial instruments (estimates range from $200 trillion to $450 trillion), aren’t likely to succeed.

So says Scott Peng, the former Citigroup analyst who, just five months before the collapse of Lehman Brothers in 2008, wrote a research report entitled ‘Is Libor broken?’ that showed Libor was not accurately representing overnight unsecured bank funding costs. It helped lead to the revelation that some of the bankers submitting the daily published rate were actually manipulating it – at first to help boost fellow traders’ positions and later low balling it to make their banks look more healthy than they really were. 

Libor-market-value-400

We know what happened next – what was once an acronym few people had heard of became a word associated worldwide with scandal.