Eh?

The Bank of England has urged City firms to accelerate their efforts to abandon the scandal-ridden Libor financial benchmark and threatened to use its powers against them in an attempt to hasten the overhaul.

Companies have been given until the end of next year to stop using the rate and the Bank and the Financial Conduct Authority said yesterday that “the time to act is now”.

What in buggery’s it got to do with the FCA?

Sure, this other rate might be better, look at this one we’ve prepared for you over here. But legal insistence that it must not be used?

Sod off Matey, sod off.

11 comments on “Eh?

  1. FCA’s position is that as the authority responsible (post Brexit) for regulating the administrator of the benchmark, it has the ability to close the benchmark down, by deciding the benchmark doesn’t meet the UK Benchmarks Regulation. Obviously that’s what it wants to do so it’s trying to shift users across to SONIA+ as quickly as possible to avoid a major market impact if it has to tell ICE to shut it down, rather than its use die quietly.

  2. But Libor is a measurement of reality. It’s like insisting that people should stop using the presense of rain falling out of the sky to determine whether to open their umberella, or programming their central heating to use the temperature of the house to decide to turn the heating on..

  3. Bloke in North Dorset said:
    “What happens to all those extant contracts that have clauses relying on LIBOR?”

    Back in the ’90s, it was a common provision in a lot of contracts that if a financial index ceased to be available and the parties couldn’t agree on an alternative, the President of the Institute of Chartered Accountants would be asked to pick a suitable replacement.

    Dunno if that’s still common, but she might have a busy time ahead.

  4. But Libor is a measurement of reality.- jgh

    No it isn’t. To quote Wiki: is an interest-rate average calculated from estimates submitted by the leading banks in London. Each bank estimates what it would be charged were it to borrow from other banks It’s a measure of fantasy.

  5. Why was LIBOR created? Because intelligent people had ceased to trust benchmarks that were set by governments and could be manipulated by governments – because they usually were manipulated. LIBOR was designed so that no single bank could manipulate it.
    The BoE runs the process for calculating SONIA and it assumes that itself is incorruptible and divinely inspired to validate the input data to correct errors and prevent manipulation. It is a nice thought but i shouldn’t choose to bet my life on it.

  6. If a bunch of leading banks decided to work together to pool their estimate of the Rate Offered Inter-Bank in London, let’s call it ROIBIL, and pay for an office somewhere to manage and present the data, what would be stopping them? Would this be an attractive proposition to any of them if they were way about the BoE involvement in SONIA? IIRC the BoE “leant on” banks during the GFC to effectively persuade them to massage/manipulate LIBOR (separately to the rigging-for-profit scandal) so am sure there would be doubts about SONIA in any situation where it seemed the BoE had an interest (ha) in making the figures point in a particular direction?

    Would appreciate the input of the wise on here.

  7. MyBurningEars –

    The banks would have to get the approval of the FCA, both themselves as “administrators” of that new benchmark, and of the benchmark itself as it’d be deemed “critical.” They’d get the former but not the latter (neither the BoE nor FCA want another LIBOR), and therefore (under the EU benchmarks regulation and the incoming UK benchmarks regulation), although the ROIBIL would be out there, no-one would be allowed to use it in contracts.

  8. BiS: Ok then, it’s like insisting people don’t make a decision to open their umberella based on what the clouds look like and the immediate local temperature changes which presage the likelyhood of water falling out of the sky.

  9. @jgh
    It’s the difference between price & value. A price is the unique instant in time when a thing is sold by one entity to another. What was paid. A fact. A value is what someone thinks a thing could be sold for. A fantasy. Value can be very close to price. Or distant from it. Other than price, you’re dealing with opinion. Does the opinion of the likelihood of rain depend on whether the opinion holder is flogging umbrellas or renting out deckchairs?

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