LIBOR Replacement—The Long and Winding Road

Abstract

LIBOR is foundational to global markets, but its design makes it unsuitable for the many uses to which it is put, creating enormous regulatory pressure to retire LIBOR in favor of more suitable benchmarks. Replacing LIBOR, however, is throwing up a new set of risks for market participants, some of which have been foreseen, and some of which are emerging as the transition gets under way. This article anatomizes those risks and roots them in the history of modern finance. TOPICS: Fixed income and structured finance, information providers/credit ratings, risk management, LIBOR, benchmarks, benchmark reform