LIBOR reforms
The BBA (British Bankers’ Association) is undertaking reforms in over two decades old LIBOR, a benchmark for worldwide financial transactions. You can read in detail about the steps being considered here.
One can judge the significance of this benchmark from the fact that over $ 350 trillion deals in IRS and over $ 10 trillion deals in loans worldwide are linked to LIBOR.
I took the news with mixed feelings. Firstly I felt proud that a couple of things that are under consideration of the BBA have already been implemented in India on MIBOR. India already has more than one fixation per day for its MIBOR while LIBOR continues with only one fixation per day and are considering to increase it. In India MIBOR is managed by NSE and kind of supervised by FIMMDA, both are pseudo-regulators or SROs as they are known as while the BBA, which manages LIBOR has no regulatory standing of any kind (just like IBA in India).
However, I wish that India moves to define the MIBOR as per the way LIBOR is defined. When collecting data for MIBOR the banks in India are asked the rate at which they’d lend in interbank market for various time periods. In case of LIBOR, the question asked to the bankers is what rate they think they would be charged if they went to the market today to borrow money. And thats what the O in LIBOR (and also in MIBOR) stands for - "offer". So we are actually not collecting the data as per the nomenclature (though we have MIBID for it, but then thats an ocassional reference in any deal).
I will be eager to follow, how the international markets react when the reforms are undertaken. And I have a wish: BBA is looking to expand its LIBOR basket from current 4 currencies and I wish they include INR!
Too wishful? Lets watch another wishful song:
