LIBOR

For forty years, LIBOR was the dominant benchmark interest rate for various financial products, playing a central role in global financial markets. LIBOR was available in 10 currencies and 15 maturities, fulfilling two primary roles: acting as a reference rate for financial contracts and serving as a benchmark for evaluating financing costs. However, these rates were not based on actual transaction data but were instead calculated from surveys of participating panel banks. Thomson Reuters computed the rates using a trimmed mean. The LIBOR scandal involved three forms of manipulation by panel banks: under-reporting, over-reporting, and maintaining artificial stability in rates. The Wheatley Review recommended reforming LIBOR instead of replacing it. In March 2021, the UK FCA officially confirmed the gradual elimination of all LIBOR settings. By June 30, 2023, the remaining US dollar LIBOR settings were discontinued. Fines related to the LIBOR scandal surpassed $10 billion. In July 2021, the World Bank announced the transition from LIBOR to new reference rates for both new and existing loans. The main alternatives to LIBOR include SOFR, SONIA, €STR, SARON, TONAR, and AONIA. This paper explores the debate between using a single or multiple reference rates, considering the benefits of a multi-reference system to mitigate systemic risk.