Fed’s Powell says alternative to Libor needed
The U.S. Federal Reserve will accelerate its search for a substitute to the Libor benchmark interest rate to stave off what would be “a horrible mess” if the current system collapses with no alternative, Fed Governor Jerome Powell said on Thursday.
“Is it wise to rely on a critical benchmark that is built on a market in decline? Clearly not,” said Powell, the Fed’s representative on an international panel charged with revising the system of reference rates used in financial contracts. If the daily estimate of Libor “were to become untenable, or if we were to simply ‘end Libor,’ … untangling the $150 trillion in outstanding U.S. dollar Libor contracts would entail a protracted, expensive and uncertain process.”
Along with the large number of dollar-based contracts, Libor is used as a reference rate for another $150 trillion in contracts denominated in other currencies and is also common in financial derivatives.
Source: Reuters
