Fed-Convened Committee Narrows the Search for a Libor Alternative
- Central bank’s new overnight bank funding rate is one option
- Fed’s Powell says report lays out path that can succeed
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A Federal Reserve-convened committee has narrowed its search for a replacement to Libor, the inter-bank interest rate underpinning trillions of dollars of derivatives and other lending transactions throughout the financial system that has been rocked by fraud scandals in recent years.
A report released Friday by the Alternative Reference Rates Committee, a group that includes representatives from the private sector and regulators, proposed two possible replacements for the London Inter-Bank Offered Rate. The U.S. central bank’s benchmark federal funds rate was considered, but ultimately discarded as an option because choosing it “could be seen as a constraint on changing the monetary policy framework” in the future, according to the report.