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