Q: Would you be in favour of the binding agreements proposed by Angela Merkel? A: Binding agreements are one way of achieving this. However, in my view, it is better to stay within the Community framework. It should be a multilateral discussion and not a bilateral one between the Commission and each Member State. There should be shared sovereignty as far as structural reforms are concerned, because there is a common interest. Q: The stress tests are nearing completion. Can we expect many failures and are there likely to be any surprises? A: We are checking the results, which will be available in the second half of October, so I cannot make any comments on them at present. Q: Will the tests be credible after what happened with Portugal’s Banco Espirito Santo (BES)? It collapsed despite the fact that the ECB and the rest of the Troika had been supervising Lisbon for the past three years. A: In the BES case, it appears that information was being kept from the supervisor, which was the Banco de Portugal and not the ECB. The ECB, the European Commission and the IMF were in Lisbon to analyse financial stability and macroeconomic outcomes. The ECB had neither the instruments nor the mandate to supervise banks, as this was the role of the national supervisor.
I want to pause here to acknowledge that, as an overnight rate, SOFR has been the subject of criticism for sometimes being volatile from day to day, especially near quarter- and year-end. I think such criticism is misplaced. Most users of SOFR don’t use a single day’s rate to determine their payments; they use average rates, which are not much affected by daily volatility. Parallel work has been going on in other jurisdictions whose currencies are used in major benchmarks. Working groups for sterling, euro, Swiss franc and yen IBORs11 have all endorsed overnight rates as their preferred alternatives to those rates.12 Three of the alternative rates are (or will be) administered directly by central banks, reflecting the recognition that crucial interest rate benchmarks are a public good, and their integrity and sustainability are key to financial stability. I’ll note that, at the outset of these reform efforts, the idea was not to completely replace LIBOR. LIBOR was being reformed to address its weaknesses as far as possible in the expectation that it could continue to be used. Efforts to “fix” LIBOR proceeded alongside the program to identify better alternatives. The idea was that if there were a more attractive alternative, firms would gradually move away from LIBOR of their own accord, with a minimum of disruption, and that LIBOR then would be seldom, if ever, used. LIBOR could still be inherently unstable despite the 2/8  BIS central bankers' speeches  reform efforts.