The U.S. financial market should quickly shift away from LIBOR, the predominant derivatives and fixed-income valuation benchmark that's been hit with accusations of bank manipulation, said Randal K. Quarles, the Federal Reserve's vice chairman for supervision, on Wednesday.
"We have only a little over 2½ years until the point at which LIBOR could end, and the transition needs to continue to accelerate," Mr. Quarles said during a roundtable discussion at the Commodity Futures Trading Commission. "The private sector needs to take on this responsibility, and we expect you to do so. The Federal Reserve's supervisory teams are including the transition away from LIBOR in their monitoring discussions with large firms."
The London interbank offered rate is being phased out across the world by the end of 2021. At the time of the financial crisis, Mr. Quarles said LIBOR was poorly structured. Contributing banks were asked to submit quotes without any requirement of evidence of transactions or other facts to back them up, "which made them susceptible to manipulation," he added.
The world's largest banks have paid billions of dollars in fines over the past several years to settle allegations of rigging LIBOR.
Last year, the Fed launched its LIBOR replacement, the secured overnight financing rate, or SOFR, while the Bank of England unveiled it sterling overnight index average, or SONIA.
Mr. Quarles and some of his counterparts at other regulators, including J. Christopher Giancarlo, CFTC chairman; Andrew Bailey, CEO of the U.K.'s Financial Conduct Authority; and David Ramsden, deputy governor of the Bank of England, said Wednesday that the transition away from LIBOR must continue with coordination between the public and private sectors.
Thomas Wipf, vice chairman of institutional securities at Morgan Stanley (MS), said all parties must continue to work together during this crucial stretch. "2019 is a mission critical year for this work … to give market participants a clear view of the economic world post-2021," Mr. Wipf said.
Beth Hammack, global treasurer at Goldman Sachs, told the public-sector officials at the roundtable that they should continue to identify and implement ways to streamline the transition, including working with data providers and technology firms, "to ensure there's broad understanding and consensus of what the industry needs to do make this transition happen."
In his opening remarks, Mr. Quarles addressed the private-sector officials by saying, "While we expect you to take on this responsibility, we in the public sector must also recognize our need to help."