Wall Street Watchdog Joins Banks in Fretting About Zombie Libor

(Bloomberg) -- “Zombie Libor” and “Libor apocalypse” are probably phrases that send chills down the spines of Wall Street traders. It turns out the terms are also triggering anxiety among swaps regulators.

U.S. Commodity Futures Trading Commission Chairman Heath Tarbert said Wednesday that his agency is tracking the threat of the London Interbank Offered Rate not entirely going away when banks are no longer required to provide submissions used to calculate it. That could lead to a situation in which the benchmark still exists, but isn’t a legitimate borrowing rate.

“To avoid a potential zombie Libor apocalypse, various proposals are currently being discussed,” Tarbert said in a speech. “We are monitoring these discussions and look forward to responding to any proposals in due course.”

Libor is used to set rates on hundreds of trillions of dollars worth of financial products. If every bank stops submitting data at the end of 2021, it will probably die. But many on Wall Street are concerned that the panel of contributors won’t shrink all the way to zero, leaving the index alive but a bad representation of lending rates. That, and the harm it might do to derivatives markets, is what Tarbert is trying to avoid.

To contact the reporter on this story: Jesse Westbrook in Washington at jwestbrook1@bloomberg.net

To contact the editors responsible for this story: Jesse Westbrook at jwestbrook1@bloomberg.net, Gregory Mott, Nick Baker

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