Restoring Confidence in Reference Rates By William C. Dudley, President and CEO of the Federal Reserve Bank of New York

Dudley_articleThe NYU Stern Salomon Center for the Study of Financial Institutions welcomed William Dudley, president and CEO of the Federal Reserve Bank of New York, to speak with students, alumni, press and guests on October 2, as part of Stern’s Financial Policy Platform Speaker Series.

The following is an excerpt from Mr. Dudley’s speech:

“Over a period of just a few decades, reference rates grew greatly in terms of their role and importance in financial markets.  For example, the use of one of the best known reference rates—the London Interbank Offered Rate, or LIBOR—has soared, so that it is now referenced by approximately $300 trillion dollars of financial contracts.  Reference rates have become a ubiquitous but largely hidden fiber in the fabric of financial markets.  They play a critical role in making financial markets more efficient by reducing information frictions, lowering transactions costs and mitigating the moral hazard.

At the same time, as recent enforcement actions and criminal investigations have made all too clear, some of these reference rates have been systematically manipulated by individuals at key financial institutions.  The assumption that the design in how these rates are constructed would be resistant to attempts at manipulation has turned out to be wrong, and the belief in the integrity of these rates has turned out to be misplaced.


It is a sad state of affairs if unethical behavior is socialized among new traders with the explanation that this is business as usual, and, if compliance and risk management are inadequate as a counterweight to prevent or identify wrong-doing.”

Ready the entire speech on the Federal Reserve Bank of New York’s website here.

Additional coverage from the Wall Street Journal.

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