BoE says plans to introduce Libor alternative next year

The Bank of England said on Wednesday it aims to introduce next year an alternative to the discredited Libor interest rate at the centre of a rigging scandal.

In the wake of a scandal that saw banks and brokerages pay billions of dollars in fines over allegations they manipulated Libor, the London Interbank Offered Rate (Libor), the G20’s Financial Stability Board last July recommended alternatives to Libor be developed for use in derivative contracts.

Libor is a benchmark which underpins around $450 trillion of financial products from mortgages to student loans worldwide.

A working group has been asked to identify the most appropriate near risk-free reference rate (RFR) by the third quarter of this year, with implementation beginning in 2016.

"I believe that this is a critical component of the interest rate benchmark reform agenda," Chris Salmon, executive director for markets at the BoE, told the private sector group made up of representatives of major sterling swap dealers.

The BoE will also collect data from about 30 banks on their sterling overnight deposit transactions to make the Sonia rate, which forms the basis of the sterling overnight index swaps market, more robust, Mr Salmon said.

Reuters