A new dawn
Moving onDespite all these reforms, and given Libor’s checkered history, regulators have tried to create new benchmarks, such as the Secured Overnight Funding Rate, and the Bank of England’s Sterling Overnight Index Average. Work on similar “risk-free rates” is in progress for the euro, Swiss franc, and the yen.
Read more: Financial services bosses are the most trustworthy(Opens in a new browser tab) But Libor offers something these alternatives do not. They suffer from one major disadvantage: the lack of a yield curve. The market requires a yield curve for contracts ranging from one day to one year. The overnight rates cannot offer that. To date, there are over three trillion dollars of new contracts linked to Libor just for that reason. While some may wish to sweep Libor under the carpet because of its past sins, it remains useful. It should not be buried, but should remain as one benchmark among others.