New York Federal Reserve President William Dudley on Thursday backed calls for the development of an alternative benchmark to the troubled U.S. dollar London interbank offered rate, or Libor. In a speech at New York University, Dudley said the regulatory community has made real progress to reform the existing Libor-setting process, although he added that more work was needed. However, even if Libor is put on a firmer foundation, "we still face the problem that the reference rate for a large stock of derivatives contracts is based on a relatively small, underlying cash market," giving a powerful incentive for individuals to continue to try to manipulate the rate for their own gain. "One promising solution" is to work to find an alternative reference rate based on a deeper underlying cash market, he said. Fed Governor Jerome Powell said recently that reform of the Libor benchmark rate may take "a couple of years of hard work" and the Fed was planning a conference to kick off the project.
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