An analysis by The Wall Street Journal shows that banks’ submissions used to calculate the London interbank offered rate often are slow to change and sometimes fail to track the market’s view of the credit risk posed by each firm.
- We found that banks’ submissions used to determine the London interbank offered rate (Libor) frequently remain static and often don’t align with the market’s perception of each firm’s credit risk, leading to questions about Libor’s credibility.
- Data shows that, from the start of 2012 through August, 18 banks on the main U.S.-dollar Libor panel kept their daily estimated rates unchanged 87% of the time, with some banks leaving their estimates consistent for months.
- The findings support growing criticism of Libor’s integrity and fuel arguments to replace it with a rate derived from actual transactions to provide a truer reflection of credit conditions, especially as questions about its manipulation persist.
Read the full story here.