News: CFTC’s Gensler on Libor | Is it the end?

23 April 2013 | Maria Leontiou

It seems that what until now has only been an open sceptisism on Mr Gensler's side, is now considered to be the strongest indication that regulators are more than eager to replace LIBOR with an alternative benchmark. As Mark Carney, the future Bank of England governor who heads the Financial Stability Board, said last week "regulators hope to have sorted out a way forward on benchmarks including Libor by this time next year". Regulators recognize that this won't be an easy task as LIBOR serves as the most common reference for Banks and corporations to value their assets and predict their borrowing costs over a specific time frame and also long term contracts are linked to it. Nevertheless as Mr Gensler puts it "It’s best that we not fall prey to accepting that LIBOR or any benchmark is too big to replace”. What regulators need to ensure is that they don't sacrifice market efficiency in the name of market integrity. Shouldn't this be the case in all regulatory efforts? Check FT piece on this topic here. Maria L. Bill: Given that millions of rate swaps are linked to LIBOR - I think a new benchmark going forward is more likely - the impact (if at all possible) of moving existing trades to a new benchmark would have a huge pricing impact. Creating a new index and executing future contracts on it, would be easier.


Maria, I think you're right that once a new index is established, new swaps / mortgages / FRNs etc. could be produced on the new index but that the existing portfolio of products based on LIBOR would not go away. I'm working on a post on how this might happen for USD and will include you in the peer review loop when I get there.