To the extent that banks and market participants rely on such models for internal pricing, capital allocations, and other decisionmaking purposes, this is a problem for us all. The fact is that we--both supervisors and bankers--do not yet know the right answers with high confidence.
The Federal Reserve began its role in co-chairing the Financial Stability Board’s working group on interest rate benchmarks and joined in international efforts to strengthen LIBOR following reports that employees at several banks sought to manipulate these rates.