Andrew Bailey, chief executive of the Financial Conduct Authority, today warned that banks must speed up their plans to ditch Libor and use the new “risk free” interest rate benchmarks in financial contracts.
“The absence of ways to remedy the current underlying weakness in Libor – the lack of transactions, the unattractive prospect of Libor limping on with fewer panel banks, and the significant problems associated with a synthetic LIBOR, all lead to the same conclusion,” Bailey said in a speech in a London.
“The best option is actively to transition to alternative benchmarks. The most effective way to avoid Libor-related risk is not to write Libor-referencing business,” he added.
Banks have been fined $9bn for trying to rig Libor, a measure of the borrowing costs among banks, and the Bank of England has launched an alternative, its SONIA overnight rate for use in contracts. But switching contracts to SONIA is difficult in some cases as Libor can stretch out several years rather than just overnight.