09 Jul USD LIBOR Reset Rate
USD LIBOR Comes Home
It never made sense that the USD LIBOR Rate reset at 11 AM London Time (5:00 AM New York Time) when most USD banks aren’t funding themselves yet. Even in calm markets, this process created issues in cross-currency swaps.
USD LIBOR Reset Rate During the Credit Crisis
During 2007-2008, the lag became particularly visible. There were plenty of other problems to focus on during the credit crisis, and these other manipulations put a magnifying glass on the USD LIBOR Reset Rate issue. After interim changes, we can look forward to permanent changes.
The LIBOR Reset Rate Crisis
The commonly held view is that the USD LIBOR Reset crisis resulted from the British Bankers Association Panel banks reporting USD LIBOR Reset Rates that were too low relative to where the LIBOR deposit rates were trading. The presumption was that this caused the Reset Rate to be out of line with other rates trading in the market. This misalignment brought to light the problems with USD LIBOR Resets Rate manipulation.
Just a Thought: Perhaps the Panel banks had no actual USD transactions to report. After all, the USD hadn’t even begun funding itself yet…
The Asian and European markets experienced the same type of manipulation. Basis swaps (the swaps between two floating rates, i.e., pay 3-month EUR and receive 3-month JPY) were also impacted and out of whack.
Please view video series on the LIBOR crisis, Drive-by Knowledge – The LIBOR Crisis.
USD LIBOR Rate Changes For Now
- ICE will administer the process of setting the LIBOR Reset Rates, and Thomson Reuters is responsible for data collection.
- LIBOR Rate observations will consist of actual transactions downloaded from the Swap Execution Facilities (SEF).
More changes to come…