willingness to lend at the rate in question, or confirm the whistleblower’s allegations of
misreporting.
Those in favor of replacing LIBOR altogether have rallied behind Gary Gensler. The
Overnight Index Swap (OIS) rate has been put forth as a leading candidate. 2010 witnessed the
adoption of OIS rates by the London Clearing House and ICAP to discount various derivatives
contracts (Brousseau et al. 2012). Some large investment banks have also joined the movement
to discount payments on financial contracts using expected compounded overnight rates to
mitigate the reliance on reference rates with a significant credit risk component (BIS 2013; Tett
2008). However, longer term OIS rates including 1-month and 3-month are not yet mainstream
among market participants.
General collateral (GC) repo rates have also been proposed as a possible complement to
the credit-risk dominated unsecured LIBOR. This proposal would use the General Collateral
Finance Repurchase Agreement Index (GCF
®
Repo Index) in place of LIBOR, with the intent
that the transaction-based index would better reflect true objective funding costs, demonstrate
stronger resilience to illiquidity under market stress, and more effectively fend off attempts at
manipulation due to central clearing. The index is calculated as the weighted average interest rate
paid on overnight GCF
®
repo transactions, which are by definition fully collateralized by U.S.
Treasury securities, agency debt, and agency MBSs. A key advantage of this approach in
implementation is that no new administrative agency would need to be established for oversight
purposes, as the Depository Trust & Clearing Corporation (DTCC) currently calculates the index
and could continue in this role with minimal interjection. Furthermore, repo contracts are known
to be an important wholesale funding source for large banks. Though the DTCC only began
publishing the index in November 2010, the product to date has shown none of the shortcomings
that have crippled LIBOR (DTCC 2013).
At an even more basic level than the GCF
®
Repo Index, Treasury rates themselves have
been put forth as a potential replacement for LIBOR for many of the same reasons. The market
for U.S. treasuries is likely the most liquid in the world, even under financial duress. Moreover,
Treasury constant maturity rates were heavily used as a reference rate for ARMs prior to the
popularization of LIBOR, and in fact is still referenced by many ARMs today (Schweitzer and
Venkatu 2012). The possibility of replacement using a combination of several rates has also been
discussed.
As of September 2013, many of the proposed changes for reforming LIBOR have already
been put in place. Five less frequently traded currencies have been discontinued (NZD, DKK,
SEK, AUD, CAD), while the five that remain now only report the 1 day, 1 week, as well as the
1, 2, 3, 6, and 12 month maturities. The total number of currency-maturity fixing pairs has been
reduced from 150 to 35, with the possibility for further consolidation in the future. LIBOR
submissions from individual banks now experience a 3-month delay in publication, effective as
of July 1, 2013. Finally, keeping in line with the Wheatley Review proposal, the BBA was
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