A body set up by the US government to investigate reforms of how banks lend to one another has decided on a new benchmark rate to replace LIBOR — the gauge which was the subject of a huge price rigging scandal in recent years.
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A committee of the world's biggest banks chose a new alternative to the scandal-ridden LIBOR rate
The Alternative Reference Rates Committee (ARRC) identified a broad Treasuries repo financing rate to replaced Libor.
A broker looks at his screens at a brokerage firm in Sao Paulo, Brazil, Friday, June 24, 2016.
The LIBOR manipulation scandal, which hit four years after the 2008 financial crisis, risked breaking trust in London's ability to function as a financial centre.
LIBOR, a benchmark underpinning more than $300 trillion in loans and derivatives, was set by a panel of banks that submitted short-term borrowing rates to the British Bankers' Association at the time of the scandal.
Regulators found that traders and rate-setters had colluded to shift the rate, benefiting the traders' positions and leading to billions of pounds in fines from US and UK regulators. Libor has since been reformed, and is no longer compiled by the BBA.
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The ARRC's recommendation comes just under two months after a Bank of England recommended a new alternative to LIBOR for use in sterling derivatives. In April, a panel of banks, including the likes of Goldman Sachs, Barclays, and Deutsche Bank approved SONIA – which stands for the Sterling Overnight Index Average – as its preferred short-term interest rate benchmark.
The SONIA index tracks the rates of actual overnight
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