Pollock: Shift from viewpoint of the borrower

Article Highlights

  • The process of setting Libor is showing its age

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  • Libor: should shift from viewpoint of the interbank borrower to that of the lender

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  • Libor is the offered rate, not the bid

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Financial Times: Letters
From Mr. Alex J Pollock

Sir, The process of setting Libor is showing its age, as well as its vulnerability to human weakness in a crisis.

The process might be immediately improved by shifting from the viewpoint of the interbank borrower to that of the lender. Its respondents should be asked: "At what interest rate will you lend in the interbank market to prime banks?" as opposed to asking at what rate they can borrow.

By its very name, Libor is the offered rate, not the bid.

Alex J. Pollock
Resident Fellow
American Enterprise Institute
Washington, DC, USA

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