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Libor, long the most important number in finance, dies at 52

nytimes.com

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Re: Libor, long the most important number in finance, dies at 52

#171

Post by Dylan16807 »

erichocean wrote: post #65
JackFr wrote: post #35

Earlier quoted context omitted.

It measures the answer to the hypothetical question "If a another bank with good credit came to you right now to borrow (overnight/1W/1M/3M) in (USD/EUR/GBP/CHF/JPY) what rate would you offer them?" Which is a proxy for the banks' willingless to lend. (It had a less quoted counterpart, LIBID the London Interbank Bid Rate, where would you borrow at.)

ELI5 Why not simply measure the actual trading activity for exactly those activities the previous day?

The reason it's not 'simply' is that you could manipulate that pretty easily too.

Re: Libor, long the most important number in finance, dies at 52

#172

Post by CraigJPerry »

DwnVoteHoneyPot wrote: post #135
CraigJPerry wrote: post #108

Earlier quoted context omitted.

>> I was surprised that the number is just based on a survey of bankers The numbers that LIBOR is measuring ultimately represent a human’s opinion. Well, it’s the opinions of several humans then the highest and lowest opinions get discarded and the rest averaged. It’s not measuring a value derived deterministically from some inputs, so how else could you capture it?

It's being replaced by historical market transaction data. Like stocks prices are based on last price.

We’re not producing cola anymore, everyone should use water instead.

SONIA is just one rate - last nights GBP overnight rate. LIBOR benchmark currencies have tenors, the future borrowing rates at different maturities.

They’re different things - so different that a “synthetic LIBOR” rate is now produced in order to help transition instruments that can’t rely only on the historical overnight rate like SONIA.

It’s true that LIBOR is being replaced (although a level 1 submission to ICE LIBOR was already based on value weighted averages from eligible transactions - it’s just that a level 3 expert judgement could override it) - but it’s not being replaced by something comparable. It’s being Replaced by an entirely different benchmark, it’s impossible to change some contracts to use the new benchmark because the new benchmark measures something different and lacks sufficient information to do everything that libor did.

Source: i inherited ownership of the system used to submit libor at one of the libor panel banks when i previously worked there.

Re: Libor, long the most important number in finance, dies at 52

#173

Post by nerdponx »

lmm wrote: post #161
nerdponx wrote: post #10

> In 1986, at age 17, it hit the big time: Libor was taken in by the British Bankers Association, a trade group described later by The New York Times as a “club of gentlemen bankers.” What are the chances that this "club of gentlemen bankers" always intended to manipulate Libor to some extent? I know finance and banking is very complicated; maybe someone will come along who happens to have been a banker in London in…

Banks took both sides of LIBOR contracts. So it wasn't really about manipulation so much as just having a standard to follow. Do you read about clubs of Silicon Valley browser makers meeting up to come up with a new HTML standard and assume that this is some nefarious plot? I imagine your London banker counterpart does.

Yes, the same level of skepticism is definitely warranted when it comes to proposals by big tech companies. That doesn't mean all proposals are bad.

Re: Libor, long the most important number in finance, dies at 52

#174

Post by bzbarsky »

codebolt wrote: post #102
hardtke wrote: post #6

I have an adjustable rate mortgage based on LIBOR and the lender still has not said what they plan to do. The presumed replacement rate (SOFR) seems to be pegged near 0% which would be good.

Note that when SOFR starts to fluctuate, you wont know your actual interest payment before the end of each payment period, since these rates are applied on a daily basis, in arrears.

That's not how mortgages work, at least in the US.

There's a limit to how often the rate changes, etc.

Just looking at one now, and it's set up as follows:

1. Rate is allowed to change only on the 1st day of every 6th month (after the initial flat-rate period ends).

2. On that day, the new rate is set to a spread + the max of 0 and the value of the 30-day Average SOFR Index (as published by the NY Fed) as of 45 days before the day when the rate is changing.

Nothing being applied on the daily basis here.

Re: Libor, long the most important number in finance, dies at 52

#175

Post by robertlagrant »

FredPret wrote: post #138
NoboruWataya wrote: post #95

Earlier quoted context omitted.

Trust is central to the financial system, for better or worse. The whole thing is based on trust - whether it's trust in the person on the other end of the phone, trust in the big-name bank that person works for, or trust in that bank's regulator. This seems stupid to some tech people, who try to disrupt it by creating trustless systems such as distributed ledgers. But trust keeps on creeping back into the system. Th…

Or we can call it the Hash-based Ordinary Daily Lending Rate

Yes. You win HN today.

Re: Libor, long the most important number in finance, dies at 52

#176

Post by gadders »

NoboruWataya wrote: post #104
gadders wrote: post #50

Earlier quoted context omitted.

Or an actual real bank...

Most banks are relatively okay now , as by now they have already spent thousands of man-hours to migrate their trades. The transition has been a major talking point for the last two years.

I've been living it a bit on the documentation side.

Re: Libor, long the most important number in finance, dies at 52

#177

Post by iudqnolq »

lmm wrote: post #158
derefr wrote: post #156

Earlier quoted context omitted.

Every day when I pass through the lobby of my apartment building, I think about the fact that our lettermail gets locked up tight in individually-keyed mailboxes, but — due to our building not being "large enough to qualify" for a parcel dropbox — large high-value parcels instead just get left lying on the lobby floor beside the mailboxes, with the matter of not stealing other people's parcels left entirely up to the…

A parcel is almost certainly replaceable stuff. A personal letter could be something like a passport or birth certificate or bearer bond.

I can tell you from experience that a California birth certificate isn't mailed folded and is much too large to fit in one of those postboxes.

Re: Libor, long the most important number in finance, dies at 52

#178

Post by jhbadger »

fanzhang wrote: post #45

When I first heard about LIBOR in 2002, I was surprised that the number is just based on a survey of bankers. Surely there would be accuracy issues with that? But at that time I was young and had no finance experience, so though that the adults in the room knew best. Turns out not! I don't think the base problem is that people shaded their numbers one way or another, it's that the system is designed wrong.

Apparently a lot of the "university rankings" that you see are based a similar method -- faculty/staff at various universities are asked to rank (other) universities and their results summarized. So, for example Harvard is the #1 US university because many people at other universities think it is! There are other attempts at rankings that try to be more objective (such as number of papers published, number of Nobel Laureates on faculty, etc.) but those of course focus more on the research output of the university rather than teaching.

Re: Libor, long the most important number in finance, dies at 52

#179

Post by lmm »

iudqnolq wrote: post #177
lmm wrote: post #158

Earlier quoted context omitted.

A parcel is almost certainly replaceable stuff. A personal letter could be something like a passport or birth certificate or bearer bond.

I can tell you from experience that a California birth certificate isn't mailed folded and is much too large to fit in one of those postboxes.

Shrug, my birth certificate was folded and fits in a normal letter envelope, so does my grandfather's from another country.

Re: Libor, long the most important number in finance, dies at 52

#180

Post by [deleted] »

iudqnolq wrote: post #177
lmm wrote: post #158

Earlier quoted context omitted.

A parcel is almost certainly replaceable stuff. A personal letter could be something like a passport or birth certificate or bearer bond.

I can tell you from experience that a California birth certificate isn't mailed folded and is much too large to fit in one of those postboxes.

[deleted]
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