ICE intends to keep the interest rate benchmark open for good despite UK regulators’ plans to bring the system to an end, and believes it has turned the scandal-hit index into a sustainable, modern part of the financial system. One option which some financiers want to use is SONIA, the sterling overnight index average.
But ICE Benchmark Administration’s bosses are understood to view Sonia as an inadequate replacement in part because LIBOR offers a range of indices covering five different major currencies and a series of time periods from overnight to 12 months. Customers use it for longer-term transactions, while Sonia only covers sterling and only measures the rate overnight. If Libor is no longer published, not all of those contracts will specify what alternative interest rate should be used – and so banks and their clients will be left with no clear way to calculate payments.