Stephen Cecchetti, Kim Schoenholtz, 27 September 2017

Financial firms have paid fines totalling more than $9 billion for manipulating LIBOR, yet this flawed benchmark has not been replaced. This column argues that there are reduced incentives for banks to participate in setting the LIBOR rate, and so the potential of, and incentives for, manipulation remain. Although LIBOR is unsustainable, international regulators are working to produce more robust alternatives and to smooth the transition.

Darrell Duffie, Piotr Dworczak, Haoxiang Zhu, 16 February 2015

Trillions of dollars’ worth of transactions depend on financial benchmarks such as LIBOR, but recent scandals have called their reliability into question. This column argues that reliable benchmarks reduce informational asymmetries between customers and dealers, thereby increasing the volume of socially beneficial trades. Indeed, the increase in trading volume may offset the reduction in profit margins, giving dealers who can coordinate an incentive to introduce benchmarks. The authors argue that benchmarks deserve strong and well-coordinated support by regulators around the world.

Darrell Duffie, Piotr Dworczak, 01 November 2014

Recent scandals involving some financial benchmarks have shaken the confidence in them. Regulators have responded with sanctions and with actions to support more robust benchmarks. This column presents new research on how a benchmark administrator would optimally weigh transaction prices to produce a fixing. Weights assigned to the observed prices should be increasing in the size of the transactions. However, in this setting, it is typically impossible to implement a benchmark in a complete absence of manipulation.   

Events

  • 17 - 18 August 2019 / Peking University, Beijing / Chinese University of Hong Kong – Tsinghua University Joint Research Center for Chinese Economy, the Institute for Emerging Market Studies at Hong Kong University of Science and Technology, the Guanghua School of Management at Peking University, the Stanford Center on Global Poverty and Development at Stanford University, the School of Economics and Management at Tsinghua University, BREAD, NBER and CEPR
  • 19 - 20 August 2019 / Vienna, Palais Coburg / WU Research Institute for Capital Markets (ISK)
  • 29 - 30 August 2019 / Galatina, Italy /
  • 4 - 5 September 2019 / Roma Eventi, Congress Center, Pontificia Università Gregoriana Piazza della Pilotta, 4, Rome, Italy / European Center of Sustainable Development , CIT University
  • 9 - 14 September 2019 / Guildford, Surrey, UK / The University of Surrey

CEPR Policy Research