The Demise Of Libor Is Part Of A Massive Global Trend That Many Overlook
Libor is essentially set by “expert judgment.” Each day, a panel of coque iphone 4s avec ponpon banks submits its estimated cost of lending coque iphone 6 skins to another bank for various time periods to the ICE Benchmark Administration.
What this means in practice is that only some of the bank submissions are based on real underlying transactions, and the rest are left up to traders’ estimates. In 2015, for example, coque samsung s8 about 70% coque iphone 7 personnage disney of the submissions were experts’ guesses.
The first was a scandal in 2014 in which traders at several large banks were found to be conspiring to manipulate Libor rates to benefit their own trading positions and so their bonuses.
The second is the decline in wholesale interbank lending in the post crisis years. Andrew Bailey, the chief executive of the FCA, has perhaps coque iphone 5s agnes focused on the second cause in his explanation of why Libor must be abandoned.
According to the FCA, with fewer real transactions on which to base the benchmark rate, Libor becomes more coque iphone 6s army and more dependent on expert guidance that is, submissions by bank managers which isn’t sustainable in coque iphone 7 galet the long run.
With increased regulation following the 2014 scandal, there is a risk that banks that currently submit Libor rates will choose to leave coque iphone 7 cochon the panel, making the benchmark rate more dependent on the estimates of fewer financial entities.
What Will Replace Libor
There’s some uncertainty about what will replace Libor, coque samsung s10 since several potential alternative rates have been proposed.
In the United States, a panel of 15 banks voted in July to support a rate based on overnight secured lending against US Treasuries. The idea is that this new rate would be based on real transactions between banks and other private entities, not the guesswork of coque iphone 6s dame traders trying to bump their annual bonuses.
But Libor is a rate for coque iphone 7 vampire diaries unsecured lending, which means that the new rate would likely be lower than Libor. For loans that are based on Libor or comparable indexes, this presents a problem for the banks: coque fendi coque samsung j3 iphone 8 If they decide to switch to this new secured rate for existing contracts, their loans will become coque iphone 8 officiel less profitable.
This is just one possible replacement, but the inverse could also become true costs could go up for borrowers of all coque iphone 6s supreme rouge types, from homeowners to students to businesses.
The Demise of Libor Is Part of a Bigger Trend
The financial concerns about Libor are coque iphone 8 cerisier legitimate. But this sort of reform wouldn’t coque samsung j6 have occurred without scandals. And these scandals would not have come to light coque iphone 6 liquide licorne if it were not for the investigation into bank lending and trading practices that began after the 2008 2009 coque samsung a20 financial crisis.
The crisis killed the idea that “experts” can manage the complex systems with which they have been entrusted. This is about more coque iphone 5s nike premium than the financial system.
There is growing mistrust of experts.
The demise of Libor is just one example of the consequences stemming from this lack of faith.
A split has formed between people who generally trust the counsel of technocrats and those who question their intent or at least their competency. That split is becoming increasingly visible coque iphone 6 fauve in the West…