Page 34 - Banking Finance February 2023

ARTICLE

ARR LEAVES

LIBOR

BEHIND

Introduction Association was issuing the LIBOR rates. Regulators in
United States, UK and European Union fined the banks for
The Name LIBOR (London Interbank Offered Rate) used to
more than USD 9 Billion for rigging the LIBOR.
be synonymous in every other loan which is raised in global
currencies i.e., USD, EUR, GBP, JPY and CHF. And the trust
Criminal charges were also levelled against individual
was also unshakable on LIBOR that no one could even think
traders and brokers for their role in the manipulation of
to question the validity of LIBOR as benchmark. Almost all
LIBOR rates. The British Regulator that was compiling the
over the world banks used to price different financial
LIBOR said the banks are no longer required to submit
products by keeping LIBOR as the benchmark. But in the
interbank lending rates for LIBOR post 2021. According to
beginning of 2012 investigation in LIBOR revealed that
the Federal Reserve and regulators in the UK, LIBOR will be
manipulation in LIBOR rate was happening by some of the
phased out completely by June 30, 2023.
top global banks notable Deutsche Bank, Barclays, UBS,
Rabobank, and the Royal Bank of Scotland for benefiting
In 2017 the Federal Reserve constitute the Alternate
their positions and this manipulation was taking place as far
Reference Rate Committee (ARRC) comprising several large
as 2003. Then administration of LIBOR was transferred to
banks to select the alternate reference rate for the United
Intercontinental Exchange, earlier The British Bankers'
State to replace the LIBOR as many irregularities were
found in the LIBOR Calculation which bankers and other
About the author stakeholders were reluctant to keep as the benchmark for
the interest rate setting. The ARRC recommended Secured
Hitesh Singh Overnight Financing Rate (SOFR) an overnight rate as the
Sr. Manager (Faculty) new benchmark for US Dollar denominated contracts. And
Union Bank of India
in other markets other ARR prevails e.g., in European Union
STC Gurugram
- Euro Short-Term Rate (ESTR), in UK - Reformed Sterling
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