Libor's Fall and Why Yawns Are Worse Than Scandal: QuickTake Q&A

After years of scandal, the London interbank offered rate, or Libor, is heading for the financial grave. By 2021, the benchmark that underpins more than $350 trillion of financial products will be phased out. Its demise, announced by a U.K. regulator, wasn’t so much a result of the corruption cases that generated some $9 billion of banking fines. Rather, it was something more mundane: The data used to calculate it just ain’t there. Now, financial authorities must scurry to find a replacement.

It’s the most commonly used benchmark for setting interest rates on everything from student and car loans to mortgages and credit cards. Countries that rely on Libor include the U.S, Canada, Switzerland and the U.K., but its reach is global. For a U.S. dollar-denominated loan taken anywhere in the world, chances are it will use Libor. The benchmark was set up by the British Bankers Association in 1986 as a way to price syndicated loans and interest-rate swaps, but its use soon ballooned. Submitted by a panel of lenders each morning, Libor is the average rate a group of 20 banks estimate they’d be able to borrow funds from each other in five different currencies across seven time periods.