Libor Not Going Gentle into That Good Night
ICE says it’s not giving up on Libor; also, insurance companies’ MMF options to shrink.
The London interbank offered rate, or Libor, has had a rough few years. Following news that banks were manipulating the benchmark submitting dodgy, non-market-based rates, trust in its validity dropped significantly. The Fed and others have entered to offer new benchmarks, most notably the recent introduction of the Secured Overnight Financing Rate.
But not so fast, says the IntercontinentalExchange (ICE), which in 2014 took over management of the rate from the British Bankers Association. Since its takeover ICE has sought to “strengthen confidence in Libor by developing a more thorough approach for bank submissions,” according to contributor John Hintze. “The benchmark still relies on submissions by a limited number of global banks, but they now follow a ‘waterfall’ methodology starting with submissions based on actual transactions, then transaction-based data, followed by the banks’ expert judgment. Will it stay relevant? Time will tell. Read more here.
Also this week, there’s an approaching deadline after which some prime institutional money market funds will not be able to used by insurance companies. Why? The funds invest in assets that don’t have the “full faith and credit” moniker of the US government. And this is against National Association of Insurance Commissioner rules. Companies have until July 1, 2018 to switch; if they decide stay in them they will have to pay risk-based capital charge. Read more here.
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