LIBOR may be down—figuratively, anyway—but it is not out.
While the scandal surrounding the rigging of the London Interbank Offered Rate is expected to widen, the index is “so ingrained in the financial system” that there’s “little threat to its status as a global interest rate benchmark,” according to a report from SNL Financial, the Charlottesville, Va.-based analytics and data company.
Clem Chambers of the European financial market website ADVFN, told SNL it would be "impossible" to unplug the financial markets from LIBOR. He believes LIBOR will maintain its central role, given the lack of a better alternative.
"Regulators are obviously going to be all over it like a rash," Chambers is quoted as saying in the latest SNL bulletin. "Better the devil you know that's got the regulators crawling all over it than the devil you don't know."
The British Bankers Association's LIBOR is the average interest rate at which leading banks borrow funds from other banks in the London market. LIBOR is the primary benchmark for short-term interest rates globally and is used as the basis for settlement of interest rate contracts on many of the world's major futures exchanges.
Barclays was accused of rigging the index over several years. Late last month, the big bank reached settlements with several European and U.S. regulatory agencies, including the FSA, CFTC and the Department of Justice.
Jody Lurie, a corporate credit analyst with Janney Montgomery Scott, also told SNL that she believes the financial system is too reliant on LIBOR to give up on it. "It's just so embedded in the markets; it's embedded in what we do," she said. "I don't ever really think that LIBOR will go away."
