How to make Libor work

Author: Danielle Myles | Published: 29 Aug 2012

The London Interbank Offered Rate (Libor) scandal has highlighted the widespread inefficiencies within the rate-setting process. The US Federal Reserve chairman has branded the process as structurally flawed and some bankers have searched for alternative market indices.

It's been two months since Barclays paid the US Commodity Futures and Trading Commission (CFTC) and the UK's Financial Services Authority (FSA) a $453 million fine to settle claims over falsifying Libor rates. In that time, authorities in the US, Europe and Asia have commenced broader investigations into suspected manipulation. But market debate has focused on how the key market index must change.

According to an IFLR poll, scrapping Libor is not the solution. CMS Cameron McKenna's Daniel Winterfeldt says it is important to remember that Libor has been used extensively and successfully in the marketplace for some time. "Eliminating Libor would potentially create liquidity issues and leave the market searching for a...