Speaker 1: After nearly fifty years of being the global borrowing benchmark,
Speaker 1: the Library is being abandoned, buried in a financial grave,
Speaker 1: only to be found in history books that recount the
Speaker 1: tales of the scandals and corruption that generated some nine
Speaker 1: billion dollars in banking fines. UK regulators have decided that
Speaker 1: the benchmark that underpins more than three trillion dollars of
Speaker 1: financial products from car loans to mortgages will be phased out.
Speaker 1: Andrew Bailey, the head of the UK's Financial Conduct Authority,
Speaker 1: set on Bloomberg TV that libral isn't sustainable because of
Speaker 1: a lack of transactions providing data. So the assumption that
Speaker 1: we have a market and money as it were, which
Speaker 1: will support libral hasn't happened, and so the current structure
Speaker 1: in a sense depends excessively in our view, on expert
Speaker 1: judgment by the submitting backs. Billy says he wants to
Speaker 1: scrap library by one joining me is John Glover, Bloomberg
Speaker 1: News Financial regulation reporter. John start by explaining exactly what
Speaker 1: the London Interbank offered rate or libor is um. Well,
Speaker 1: it's yeah, it's a series of different call them in
Speaker 1: let's call them indexes. Or benchmarks that grew up over
Speaker 1: time organically as the euromarkets developed. That's the markets for
Speaker 1: um assets financial assets in Europe rather than the markets
Speaker 1: in Euros. Now, why, well, there's a series, there's a
Speaker 1: series of currencies in a series of what they call
Speaker 1: tenants maturities. Why this decision to drop libor, Well, the
Speaker 1: reason he grew up where it did and when it
Speaker 1: did is that banks needed to borrow from each other
Speaker 1: overnight or for three months or six months or whatever
Speaker 1: um in various currencies, and so they needed some kind
Speaker 1: of a benchmark. They don't borrow from each other much anymore.
Speaker 1: So there are the transactions, particularly in some currencies which
Speaker 1: are very adequate at some at some maturities. So there's
Speaker 1: no real transaction taking place. It's just a guess that
Speaker 1: the panels that say how much it would it would
Speaker 1: cost a prime bank to borrow from another prime bank
Speaker 1: for a certain amount of time, they're just pulling numbers
Speaker 1: out of the air. Really, I mean that's unfair, but
Speaker 1: because they're more closely policed than that. But then it's
Speaker 1: an estimate. So what happens now when there is no
Speaker 1: replacement for it, Well, they're building replacements slowly but surely.
Speaker 1: Um and the company which is ice that space I
Speaker 1: think in Atlanta that it ministers the benchmark now after
Speaker 1: it was taken away from the British Banking Association as
Speaker 1: it then was um IT wants to continue with the libel.
Speaker 1: The regulator clearly doesn't want that's the f c A.
Speaker 1: Andrew Bailey, when you just heard, clearly wants to phase
Speaker 1: it out. And by setting the dead line, my impression
Speaker 1: is that the thinking is that they will be forced
Speaker 1: to come up with some kind of solution that will
Speaker 1: satisfy his current needs because the needs have changed. The
Speaker 1: libel was answering a certain question that was asked a
Speaker 1: certain time. That question is no longer being asked, so
Speaker 1: library is answering it is five years enough time to
Speaker 1: transition away. There's the fifty trillion dollar questions. Um It's
Speaker 1: Bailey does say that in the he has spoken to
Speaker 1: the panel banks and he they reckoned that that should
Speaker 1: be enough. We will see. Well, let's talk about whether
Speaker 1: there is going to be uncertainty into swap rates based
Speaker 1: on the benchmark. Let's talk about financial lawyers and how
Speaker 1: busy they're going to be with libor based contracts, just
Speaker 1: checking contracts. Yeah, I think the lawyers are going to
Speaker 1: love it. They've been I've been talking to a few
Speaker 1: recently though. They've all built these, um, the big ones,
Speaker 1: big firms, what we call the Magic Circle in London. UM,
Speaker 1: they've all built artificial intelligence bots that will check contracts
Speaker 1: for do the grunt work. So it may not be
Speaker 1: as hard to do the papering as they called it.
Speaker 1: As it seems because if you have to go through
Speaker 1: it manually, millions and millions of contracts, then that's going
Speaker 1: to take forever. But if you've got a robot doing it,
Speaker 1: then it may not take quite as long as people think.
Speaker 1: But who knows. So you're getting a lot of associates
Speaker 1: out of work there. Um is what's the general feeling
Speaker 1: in about you know, we have about thirty seconds here.
Speaker 1: What's the general feeling about this? You know, ending of
Speaker 1: libor oh um. I think people people on the sharp
Speaker 1: end who are who are sort of swaps dealers, who
Speaker 1: are using it are waking up to the fact that
Speaker 1: they won't have it forever. It's not going to be
Speaker 1: around forever. Um. I was talking to a character from
Speaker 1: a private equity firm at them just after the meeting today,
Speaker 1: after the speech, and he was saying that they've got
Speaker 1: all these loans based on library and I said, well,
Speaker 1: you know, what did you think? What do you think
Speaker 1: of Sonya? He says, this is the first I've heard
Speaker 1: of it, so I think the process is really getting underway. Sonya,
Speaker 1: by the way, is the suggested M a substitute for library.
Speaker 1: It stands for Sir Stirling Overnight interest average, if I'm
Speaker 1: not mistaken, with be a benchmark or near risk, the
Speaker 1: benchmark for borrowing in pounds. Thank you, thank you so
Speaker 1: much for enlightening us. That's John Gloves, a Bloomberg News
Speaker 1: financial a regulation reporter, coming up lawsuits on climate change
Speaker 1: in California