Daily Management Review

Bank of England warns of LIBOR risks


07/06/2018


British banks and financial firms risk getting a time bomb if they do not refuse to use the London Interbank Offering Rate (LIBOR) by 2021, warn regulators. This is reported by The Telegraph.



Chris Sampson via flickr
Chris Sampson via flickr
The minutes of the June meeting of the Bank of England's Financial Policy Committee (FPC) underscore fears that many new financial contracts are issued on the basis of this rate, despite the fact that it is planned to abandon it in three years’ time.

According to the Bank of England, financial contracts for more than 30 trillion pounds sterling are linked to LIBOR. These contracts include interest rate swaps, interest rate futures, cross-currency swaps, syndicated loans, and floating rate bonds.

"As long as the volume of LIBOR-related derivatives in pounds sterling continues to increase, medium-term risks for financial stability will grow," warned the regulator.

LIBOR is calculated by the British Banking Association on a working day basis based on data provided by the largest British banks on their estimated borrowing costs. The LIBOR rate is calculated for five currencies: the US dollar, the pound sterling, the Swiss franc, the Japanese yen and the euro.

The reliability of the benchmark was questioned because of a series of scandals. It turned out that traders of a number of banks manipulated the rate by providing false data.

Earlier it was reported that Britain will stop using LIBOR by the end of 2021, as regulators and banks want to replace this rate with a more reliable one.

Bank of England and major dealers in the UK supported the rate of SONIA (Sterling Overnight Index Average) as the preferred "almost risk-free" benchmark.

"Over time, the private sector will develop a wider range of products related to SONIA," said the head of the Bank of England, Carney, "The end point should be an ecosystem for interest rate markets that have a healthier basis than at present".

source: telegraph.co.uk 






Science & Technology

Tech giants face stricter government regulation in the US

Nestle's Head: Veggie meat is new megatrend

Huawei may introduce Android replacement in August

Are US high-tech investors causing brain drain in Europe?

'Russia's Google' Yandex Was Hacked By Western Intelligence For Spying: Reuters

Reuters: Chinese hackers were stealing data from IT giants for years

China's first solar power molten salt plant sets record

WSJ announces imminent start of Boeing 737 MAX flight tests

Study: Machine learning is five times more harmful for the environment than a car

Would Singapore Be The First One To Bring Lab Grown Shrimps To The Global Market?

World Politics

World & Politics

France announces new tax for air fares

Europe Concerned Over Iran Move To Breach Uranium Enrichment Cap

Singapore To Build ‘$296 Million’ Smart Next-Gen Army Training Centre

No More Sales Of E-Cigarettes In San Francisco?

US ‘Hell-Bent On Hostile Acts’ Even After Trump-Kim Agreement, Says North Korea

Italy avoids EU sanctions for high national debt

Trump allocates 4.6 bln to help migrants

Iran Says Trump’s Belief That US-Iran War Would Be Short Is “An Illusion”