Fed’s Williams calls for urgent replacement of Libor


NEW YORK–Federal Reserve Bank of New York President John Williams said Monday financial firms need to stop dragging their collective feet and transition to a new reference interest-rate system to replace the scandal-plagued London interbank offered rate regime.

“I don’t always sense urgency among market participants on this issue” of replacing what’s called Libor, Mr. Williams said a speech delivered at a conference held by the Securities Industry and Financial Markets Association.

“Tellingly, contracts referencing U.S. dollar Libor, without robust fallback language, continue to be written,” he said. While there remain some issues with the new system of rates, Mr. Williams said “don’t wait for term rates to get your house in order. Engage with this issue now and understand what it means for your operations..”

Mr. Williams’ remarks addressed the effort the Fed and the financial industry have been involved in to create a new, more reliable system of reference interest rates that are critical to overall market functionality.

His speech zeroed in on what’s called the Secured Overnight Financing Rate, or SOFR. This overnight rate, published daily by the New York Fed and based off Treasury bond borrowing costs, is aimed at creating a more reliable system of interest rates for financial transactions. It is supposed to replace Libor, a long-running system that has suffered from a series of scandals in which it was manipulated.

An expanded version of this story appears on WSJ.com

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