regulators hope that more derivatives and loans will be backed by the rate, which will decrease the importance of Libor (Reuters, 2018). Various countries have adopted their own risk-free rates such as: SONIA (UK), SOFR (US) and more.
These rates are set in overnight markets. The LIBOR had maturity ranging from a variety of different periods, such as the three-month LIBOR. These new rates are determined once, at the end of each period. So, Unlike LIBOR, banks are unable to know how much interest rate is to be paid until the end of that overnight period, implying the disparities in payment between both these rates and LIBOR rates respectively. This model could prove advantageous in preventing collusion between banks, but these new rates adapting to market conditions and everyday life can have major implications. These complications include indexing and hedging these risk-free rates to LIBOR rates in various currencies, to link products to the new rate. What risk management instruments are needed to retain liquidity? The transition will change firms’ market risk profiles, requiring changes to risk models, valuation tools, product design and hedging strategies (Paul Cantwell, 2018). Such complications to a new model imposes further costs and uncertainty in adopting these rates appropriately. Moreover, these issues are dragged across to company stakeholders. For example, Members of staff are subject to a change in operational procedures, as they will be given training on how to work with new accountancy and tax processes, and how to endure systematic changes. These factors cause major concern.

Unlike the SONIA, which is used in the UK to reference the OIS, other alternative rates such as the US SOFR are secured, rather than unsecured. These secured contracts eliminate credit risk, which provides lower interest rates than unsecured rates. This gives a variety of options, such as cross-diversifying financial and retail contracts in different countries, to spread risk.

In Conclusion, the world’s largest banking cartel has given a huge insight into how the major banking players can manipulate numbers through collaboration and in turn, discredit individuals to reap profits and for the protection of their own. Once the world’s most important number became implicated as Fraudulent, Regulators made Banks and Bankers aware of how destructible they were – by ensuing large fines, the ‘stepping down’ of senior banking officials and arresting Inside Traders for Criminal Offences. Wheatley’s review of recommendations and other reforms that were already implemented, has shown great effort and achievement in reforming the LIBOR. However, a great number of contracts and derivates are still attached to LIBOR, that could even last longer than the 2021 Date of LIBOR Expiration, which would cause a huge problem in years to come. Once implemented, these new reference rates are pressured to take on the huge responsibilities of contracts, due to LIBOR’s reducing structure. Furthermore, measures tak