Libor: Entering the Endgame  Speech given by Andrew Bailey Governor of the Bank of England  Bloomberg Webinar, London and New York 13 July 2020  I am grateful to Alastair Hughes for his assistance in drafting these remarks and Paul Brione, Andrew Hauser, Thomas Horn, Will Parry and Edwin Schooling Latter for their input. 1  All speeches are available online at www.bankofengland.co.uk/news/speeches  Introduction “‘The passing of summer,’ I thought. ‘There can be no summer in this land without cricket.’” So wrote the journalist and author Neville Cardus.1 Covid has deprived us of many aspects of our communal lives this year. It has meant no cricket for us until last week, and in the US still no baseball. And to prove that we share an obsession with summer pastimes, a former colleague from many years ago when I was seconded to the New York Fed gave me a book to read called ‘How Life Imitates the World Series’. Sadly, my speech cannot match that for importance. But a more recent summer tradition has been speaking on Libor, a now annual event for the past few years – but one I do not expect to be a permanent fixture. The time is fast approaching to draw stumps on the Libor benchmark, or for those to whom cricket is a mystery – after all not everyone appreciates a sport that can last five days and still end in a draw – we will soon be at the bottom of the ninth for Libor.
There is no one size fits all approach, and while there is a common view across jurisdictions that liquidity should move to overnight near risk-free rates where appropriate, this is not to exclude the use of other robust benchmarks. There is a workstream under the US working group – the ARRC6 – that is currently looking at the potential to develop alternative dollar reference rates that include a credit-sensitive spread element, perhaps as an alternative or add-on to the new near risk-free rate across a subset of products. But market demand for credit-sensitive rates that seek to reflect changes in bank funding costs and directly pass these on to borrowers cannot come at the expense of ensuring those rates are sufficiently robust. Introducing new approaches that simply replicate the inherent weaknesses of Libor would be a failure. Would-be producers of such rates face the challenge of doing so in markets where liquidity may be thin or variable. Those choosing to use such rates would need to understand the exposure they were taking on to the liquidity conditions in those markets, and the volatility in the benchmark rate this could cause. We will continue to work domestically and internationally to prevent financial markets being materially exposed to risks from fragile benchmarks in terms of both the integrity of those rates and ensuring continuity of provision. 6  The Alternative Reference Rate Committee is a group of private market participants convened by the Federal Reserve Board and New York fed to help ensure transition from U.S. dollar Libor.