And it was that ‘design feature’, coupled with weak governance, and the huge stock of assets priced off LIBOR, which gave such a strong incentive for manipulation. Though governance arrangements for LIBOR have since been strengthened, the vast majority of term LIBOR rates remain largely or wholly based on judgment, reflecting the absence of any material underlying market (Figure 2). -  Third, despite these two profound drawbacks, the informational and liquidity advantages of using a common established benchmark, coupled with the deep embedding of LIBOR in a range of systems, accounting and regulatory requirements have meant moving away from the use of LIBOR has required determination, forward-thinking and co-ordinated effort – even for those large parts of the market where it is manifestly the wrong rate to use. 5  All speeches are available online at www.bankofengland.co.uk/news/speeches  5  Figure 2: Input sources for current LIBOR tenors 4  What opportunities will a post-LIBOR world offer? Taken together, these three observations show why LIBOR transition is both necessary from a risk perspective and beneficial for the long-term efficiency of the financial markets, whilst also being unpopular in terms of the one-off transition costs involved. Indeed, there is a material risk that those transition costs are obscuring a clear perspective of the commercial benefits to users of moving beyond LIBOR. What are those benefits? It would be brave for me as a public official to attempt anything approaching a complete answer to that question.
But delivering it is as complex a task as any the financial sector has faced over the past decade, involving a global network of market participants and public authorities, and touching most systems, products and markets in some way. 1 Small wonder then that many firms see LIBOR transition as a ‘must do’ more than a ‘want to do’. But that perspective misses a key point: LIBOR is past its sell-by date – not just in risk terms, but in business terms too. It was designed to solve the problems of a very different era, when markets were far less transparent, and far less adept at packaging and repackaging risk. With the tools we have today, a post-LIBOR world offers many new and better opportunities: to meet the borrowing needs of households and firms; to allocate and manage risk; to express views on, or hedge against, the future paths of interest rates and credit risk; and to exploit new technologies. So more lightbulbs – fewer clenched fists! Firms who grasp these opportunities early will have a real edge. In sterling markets, we have already seen how quickly specific instruments can switch away from LIBOR when the necessary foundations have been laid and first-line business teams then put their shoulder to the wheel. In Floating Rate Notes, sterling securitisations and large swathes of the cleared derivatives market, innovation and competition has driven a virtuous circle of rising liquidity and rising volumes. Taken together, these changes put sterling markets at the leading edge of global transition.