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Reasons for the LIBOR review and its effects on international interbank reference rate quotations

Author

Listed:
  • Szilárd Erhart

    (Magyar Nemzeti Bank (central bank of Hungary))

  • Imre Ligeti

    (Magyar Nemzeti Bank (central bank of Hungary))

  • Zoltán Molnár

    (Magyar Nemzeti Bank (central bank of Hungary))

Abstract

In 2012, news related the manipulation of LIBOR directed the attention of authorities and the general public to interbank reference rates. International reviews made it clear that a reform of LIBOR and the numerous reference rates that follow the methodology of LIBOR is necessary, because changes in reference rates influence the payment terms of thousands of billions in loans and other financial agreements. Rapid and at the same time radical changes cannot be expected in the short run, because preparation of the changes poses a regulatory challenge that requires complex, international cooperation. In order to restore confidence, as of 2013 the British authorities intend to strengthen LIBOR by the introduction of a statutory regulation, and they are also planning to designate a new, independent administrator and to drastically cut the number of quotes. Overall, our study confirms the findings of earlier analyses prepared by the Magyar Nemzeti Bank, according to which BUBOR shows the real market conditions as an average of longer periods, but at present its ability to provide a short-term forecast of interest rate steps is limited.

Suggested Citation

  • Szilárd Erhart & Imre Ligeti & Zoltán Molnár, 2013. "Reasons for the LIBOR review and its effects on international interbank reference rate quotations," MNB Bulletin (discontinued), Magyar Nemzeti Bank (Central Bank of Hungary), vol. 8(1), pages 23-34, January.
    • Handle: RePEc:mnb:bullet:v:8:y:2013:i:1:p:23-34
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    File URL: http://www.mnb.hu/letoltes/erhart-ligeti-molnar.pdf
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    References listed on IDEAS

    as
    1. Jacob Gyntelberg & Philip Wooldridge, 2008. "Interbank rate fixings during the recent turmoil," BIS Quarterly Review, Bank for International Settlements, March.
    2. Szilárd Erhart & András Kollarik, 2011. "The launch of HUFONIA and the related international experience of overnight indexed swap (OIS) markets," MNB Bulletin (discontinued), Magyar Nemzeti Bank (Central Bank of Hungary), vol. 6(1), pages 20-29, April.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    libor; manipulation; interbank reference rate; irs; bubor; tibor; euribor; wheatley; interest rate expectations;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • F30 - International Economics - - International Finance - - - General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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