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Speaker 1: After nearly fifty years of being the global borrowing benchmark,

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Speaker 1: the Library is being abandoned, buried in a financial grave,

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Speaker 1: only to be found in history books that recount the

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Speaker 1: tales of the scandals and corruption that generated some nine

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Speaker 1: billion dollars in banking fines. UK regulators have decided that

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Speaker 1: the benchmark that underpins more than three trillion dollars of

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Speaker 1: financial products from car loans to mortgages will be phased out.

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Speaker 1: Andrew Bailey, the head of the UK's Financial Conduct Authority,

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Speaker 1: set on Bloomberg TV that libral isn't sustainable because of

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Speaker 1: a lack of transactions providing data. So the assumption that

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Speaker 1: we have a market and money as it were, which

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Speaker 1: will support libral hasn't happened, and so the current structure

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Speaker 1: in a sense depends excessively in our view, on expert

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Speaker 1: judgment by the submitting backs. Billy says he wants to

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Speaker 1: scrap library by one joining me is John Glover, Bloomberg

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Speaker 1: News Financial regulation reporter. John start by explaining exactly what

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Speaker 1: the London Interbank offered rate or libor is um. Well,

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Speaker 1: it's yeah, it's a series of different call them in

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Speaker 1: let's call them indexes. Or benchmarks that grew up over

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Speaker 1: time organically as the euromarkets developed. That's the markets for

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Speaker 1: um assets financial assets in Europe rather than the markets

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Speaker 1: in Euros. Now, why, well, there's a series, there's a

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Speaker 1: series of currencies in a series of what they call

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Speaker 1: tenants maturities. Why this decision to drop libor, Well, the

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Speaker 1: reason he grew up where it did and when it

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Speaker 1: did is that banks needed to borrow from each other

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Speaker 1: overnight or for three months or six months or whatever

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Speaker 1: um in various currencies, and so they needed some kind

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Speaker 1: of a benchmark. They don't borrow from each other much anymore.

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Speaker 1: So there are the transactions, particularly in some currencies which

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Speaker 1: are very adequate at some at some maturities. So there's

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Speaker 1: no real transaction taking place. It's just a guess that

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Speaker 1: the panels that say how much it would it would

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Speaker 1: cost a prime bank to borrow from another prime bank

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Speaker 1: for a certain amount of time, they're just pulling numbers

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Speaker 1: out of the air. Really, I mean that's unfair, but

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Speaker 1: because they're more closely policed than that. But then it's

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Speaker 1: an estimate. So what happens now when there is no

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Speaker 1: replacement for it, Well, they're building replacements slowly but surely.

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Speaker 1: Um and the company which is ice that space I

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Speaker 1: think in Atlanta that it ministers the benchmark now after

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Speaker 1: it was taken away from the British Banking Association as

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Speaker 1: it then was um IT wants to continue with the libel.

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Speaker 1: The regulator clearly doesn't want that's the f c A.

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Speaker 1: Andrew Bailey, when you just heard, clearly wants to phase

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Speaker 1: it out. And by setting the dead line, my impression

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Speaker 1: is that the thinking is that they will be forced

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Speaker 1: to come up with some kind of solution that will

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Speaker 1: satisfy his current needs because the needs have changed. The

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Speaker 1: libel was answering a certain question that was asked a

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Speaker 1: certain time. That question is no longer being asked, so

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Speaker 1: library is answering it is five years enough time to

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Speaker 1: transition away. There's the fifty trillion dollar questions. Um It's

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Speaker 1: Bailey does say that in the he has spoken to

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Speaker 1: the panel banks and he they reckoned that that should

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Speaker 1: be enough. We will see. Well, let's talk about whether

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Speaker 1: there is going to be uncertainty into swap rates based

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Speaker 1: on the benchmark. Let's talk about financial lawyers and how

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Speaker 1: busy they're going to be with libor based contracts, just

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Speaker 1: checking contracts. Yeah, I think the lawyers are going to

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Speaker 1: love it. They've been I've been talking to a few

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Speaker 1: recently though. They've all built these, um, the big ones,

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Speaker 1: big firms, what we call the Magic Circle in London. UM,

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Speaker 1: they've all built artificial intelligence bots that will check contracts

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Speaker 1: for do the grunt work. So it may not be

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Speaker 1: as hard to do the papering as they called it.

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Speaker 1: As it seems because if you have to go through

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Speaker 1: it manually, millions and millions of contracts, then that's going

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Speaker 1: to take forever. But if you've got a robot doing it,

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Speaker 1: then it may not take quite as long as people think.

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Speaker 1: But who knows. So you're getting a lot of associates

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Speaker 1: out of work there. Um is what's the general feeling

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Speaker 1: in about you know, we have about thirty seconds here.

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Speaker 1: What's the general feeling about this? You know, ending of

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Speaker 1: libor oh um. I think people people on the sharp

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Speaker 1: end who are who are sort of swaps dealers, who

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Speaker 1: are using it are waking up to the fact that

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Speaker 1: they won't have it forever. It's not going to be

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Speaker 1: around forever. Um. I was talking to a character from

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Speaker 1: a private equity firm at them just after the meeting today,

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Speaker 1: after the speech, and he was saying that they've got

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Speaker 1: all these loans based on library and I said, well,

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Speaker 1: you know, what did you think? What do you think

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Speaker 1: of Sonya? He says, this is the first I've heard

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Speaker 1: of it, so I think the process is really getting underway. Sonya,

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Speaker 1: by the way, is the suggested M a substitute for library.

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Speaker 1: It stands for Sir Stirling Overnight interest average, if I'm

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Speaker 1: not mistaken, with be a benchmark or near risk, the

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Speaker 1: benchmark for borrowing in pounds. Thank you, thank you so

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Speaker 1: much for enlightening us. That's John Gloves, a Bloomberg News

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Speaker 1: financial a regulation reporter, coming up lawsuits on climate change

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Speaker 1: in California