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23 August 2012

Poll: Should the Libor System Be Replaced with Actual Overnight Rates?

In a poll conducted earlier this week in the CFA Institute Financial NewsBrief, we asked subscribers if the London Interbank Offered Rate (Libor) quote system should be replaced with a system that uses actual overnight rates. A whopping 90% of 1,113 respondents said yes.


Do you think that the London Interbank Offered Rate quote system should be replaced with a system that uses actual overnight rates?
Poll: Do you think that the London Interbank Offered Rate quote system should be replaced with a system that uses actual overnight rates?


This strong vote is certainly a response to the ongoing Libor scandal, which has revealed that this important global benchmark of interest rates was manipulated by parties tasked with setting the rate. Thus, an objective standard, free from personal self-interest, seems preferable. Historically, one of the reasons Libor was set in a subjective fashion was that a full suite of market rates was not available each day. Although this problem will still exist in a more objective system, an agreed-upon mathematical model can probably be used to substitute for missing market rates and maintain Libor’s objectivity. A good dose of transparency wouldn’t hurt either.


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About the Author(s)
Jason Voss, CFA

Jason Voss, CFA, is a content director at CFA Institute, where he tirelessly focuses on improving the ability of investors to better serve end clients. He is the author of the Foreword Reviews Business Book of the Year Finalist, The Intuitive Investor. Jason also ran a successful blog titled What My Intuition Tells Me Now. Previously, Voss was a portfolio manager at Davis Selected Advisers, L.P., where he co-managed the Davis Appreciation and Income Fund. He holds a BA in economics and an MBA in finance and accounting from the University of Colorado.

Ethics Statement

My statement of ethics is very simple, really: I treat others as I would like to be treated. In my opinion, all systems of ethics distill to this simple statement. If you believe I have deviated from this standard, I would love to hear from you: jason.voss@cfainstitute.org