Efforts to replace Libor with a credible alternative have taken another step forward.
Fifteen banks voted Thursday on a replacement for the U.S. dollar London interbank offered rate, the besmirched interest-rate benchmark that some of them were accused of rigging in an industry wide scandal a few years ago.
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Banks participating in the vote had recently decided on two candidates, and settled on a broad-based Treasury financing rate as their preferred alternative, according to a statement from the Alternative Reference Rates Committee. The individual vote tally wasn't disclosed, a spokesman for the group said.
The runner up was an overnight gauge of bank funding costs, comprised of transactions from the federal-funds market and Eurodollar trading. Asset managers and other investment firms were consulted as part of an advisory group formed in November 2016, but didn't vote.
The voting member banks were brought together by the Federal Reserve Bank of New York and the Fed Board of Governors in Washington, after banks were alleged to have manipulated Libor. Banks paid billions of dollars to settle those investigations.
Phasing in the new rate is expected to start next year on a voluntary basis, but it remains to be seen how many industry participants will migrate to the new benchmark over the near term.
Libor has been deeply embedded in financial markets for decades and is used to set rates for hundreds of trillions of dollars of derivatives and other borrowings, including loans to consumers, companies and governments.
Even so, regulators have called on market participants to move to a new rate, as soon as one became available. Last May, a Treasury group also convened by the New York Fed recommended that industry participants use benchmarks that are compliant with new international financial-market standards.
The New York Fed has proposed publishing the new alternative reference rate in cooperation with the Office of Financial Research.
Sandra O'Connor, a J.P. Morgan Chase & Co. executive who chairs the ARCC, said in a statement following the vote that by selecting an alternative to Libor, the industry "took an important step to strengthen the financial system."
Fed Governor Jerome Powell said in a separate statement he was confident the new rate is "based on a deep and actively traded market and will be highly robust."
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(END) Dow Jones Newswires
June 22, 2017 16:49 ET (20:49 GMT)