You may remember a few years back when several traders at Barclays were convicted of rigging the LIBOR (London Interbank Exchange Rate). Well, just a week ago Société Générale SA settled allegations with US and French regulators that it also had manipulated rates. The LIBOR is a key benchmark for many investment products, including critical mortgage rates, and central bank monetary policies. Well, if you noticed that there hasn’t been much news since then, then you’re not the only one.
Recently, Officer Cornelia Holthausen of The European Central Bank (ECB) was recently quoted as saying that the banks have been dragging their feet in working towards a replacement benchmark. Only recently have real strides been made and now an projected sunset and replacement in late 2019 been agreed upon. The new Ester benchmark is much more difficult to manipulate as it is based on the volume of loan transactions and not an estimate of banks’ cost to borrow from one another. A single bank trying to manipulate lending rates would price itself out and lose money. Bloomberg WSJ