Ideally, it would reflect an actual trading market rather than the “what if” quotes that underpin Libor. The market should be very active and used by a wide variety of participants, making it difficult to manipulate. It should also be useful for banks and other institutions that want to hedge against changes in interest rates....
Any transition from Libor to a new benchmark will take a long time. Traders will resist change. And even if all new contracts are tied to repo rates starting in the near future, some of the loans that reference Libor will be around for decades to come. But those are small obstacles in the way of a change that could have major consequences, not the least of which would be an honest benchmark for interest rates paid by millions of corporations and homeowners.Fortunately, there is an easy way to achieve the Bloomberg editorial board's ideal rate.
That is to require banks to provide ultra transparency and disclose on an on-going basis their current asset, liability and off balance sheet exposure details. Market participants could use the details on the banks liabilities to calculate Libor.
As a result, Libor would reflect actual trading, be almost impossible to manipulate, retain its usefulness in hedging against changes in interest rates and, most importantly, could rapidly be substituted for the current Libor with an absolute minimum of disruption (after all, Libor would now show what it was previously represented as showing).