Bloomberg reports that:
Saron, Sonia, Tonar and Eonia. Behind the Tolkienesque names are the potential candidates to replace Libor, the global borrowing benchmark that underpins more than $350 trillion of financial products, which as of July 27 is being phased out by 2021.
Attaching a time frame to Libor's demise has shifted into sharp focus efforts by financial authorities from Japan to Switzerland to replace the London interbank offered rate. Aside from being mired in fixing scandals, the benchmark has proven increasingly obsolete because of the lack of data behind the daily morning calculation that has established the level set up by the British Bankers Association in 1986.
Count me as dubious.
In my article Reforming LIBOR: Wheatley versus the Alternatives (January 31, 2013), NYU Journal of Law & Business, Vol. 9, No. 2, 2013, available at SSRN: https://ssrn.com/abstract=2209970, I argued that:
Although some commentators proposed replacing LIBOR with a new benchmark, and some banks went so far as to test alternatives, that option never gained significant traction. Huge costs would have resulted from overturning long-settled reliance expectations in multiple markets, because numerous types of financial instruments and contracts with a total value in excess of $300 trillion referenced LIBOR. Accordingly, Wheatley opined, “that a transition to a new benchmark or benchmarks would pose an unacceptably high risk of significant financial instability, and risk large-scale litigation between parties holding contracts that reference LIBOR.” In addition, Wheatley concluded that there was “no immediately obvious alternative” to LIBOR. As a result, attention focused on developing what Wheatley called “a comprehensive and far-reaching program of reform” of the existing benchmark.
As far as I can tell, that analysis remains sound.
