Martin Wheatley published his final report into Libor this morning, concluding that though the rate should stay for practical reasons, it needs someone to ‘press the reset button’.
It would have sent a strong message out to scrap the rate and replace it with something new, but Wheatley feared that doing so would ‘pose an unacceptably high risk of significant financial instability, and risk large-scale litigation between parties holding contracts that reference Libor’. In other words, a rate whose failings caused chaos in the banking world would cause even more chaos if it disappeared. The report also noted that though significant damage has been done to its reputation, there has been no noticeable decline in the use of Libor since the scandal broke this summer.
The new-look Libor will be ironed so that many of the flaws which led to the widespread manipulation at banks should disappear.
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